Jefferies interaction with HDFC Bank on retail business indicates that momentum on client acquisition is buoyant despite Covid and will help grow through cross-sells. Growth in retail loans will be led by housing, LAP, auto, gold and retail working capital; retail is growing MOM for 6 months and above pre-Covid. New launches in auto and healthcare loans hold promise. Focus on reducing client-complaints and improving net-promoter-score will help deepen client-relationships. Jefferies says the target price on HDFC Bank is Rs 1860. HDFC Bank share price today is Rs 1479, up Rs 10 or 0.7%.

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Good momentum in client acquisition and relationship building:

HDFC Bank has sustained healthy client additions, despite Covid, during 9M FY21 with 5.4m new clients added vs. 6.4 mn in FY20. This has been led by expansion in non-urban markets & partnerships like CSC centres. Since March 2019, the debit card base has grown by 31% to 35.5m. Jefferies understands that the value of relationships with new clients is similar to existing clients; hence it's not just volume-based growth. Jefferies believes that client growth ability to offer a suite of products will anchor growth in Casa deposits (Jefferies see 18% CAGR over FY20-23) even as it keeps interest rates on deposits among the lowest.

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Retail business above pre-Covid levels; focus areas for retail lending:

HDFC Bank has seen retail credit growth slow to 5% in 9MFY21. It's encouraging to see business is growing MOM for the past 6 months and above pre-Covid levels. Focus is on secured segments like retail working capital, home loans, auto loans, LAP and gold financing. Unsecured disbursements are also picking-up & will be linked to opening-up of economy/ travel. On the client side, the bank is focussing on internal liability customers, higher-income segment, Government-employees and digital acquisitions. Jefferies sees growth in retail loans pick-up to 21% over FY21-23 and this will also aid NIM.

Digital platform for auto loan & healthcare holds potential:

In the auto loan segment, it is among the largest financiers and will be rolling out its instant-approval digital product across most cities that will help grow open-market acquisition. It is seeking RBI approval that may weigh it with overall review of digital platforms. In the healthcare segment, partnerships with Apollo Hospitals and other players in the ecosystem (like stockists, doctors, pharmacies etc.) were launched recently and per management the progress is encouraging. Apollo Hospitals is among the largest chain of hospitals and may offer access to c.30m customers and focus on distributors etc. will provide access to 8000+ suppliers.

Balancing tight risk framework and strong sales:

HDFC Bank has demonstrated superior underwriting in retail loans with 70-80% of unsecured/credit-card clients being salaried & working with top-corporate. Hence, credit costs have been among the lowest. Risk & business teams work independently- risk team lays down the framework and sales team can push sales with limited back & forth.