Thread by @Riteshoswal001

The next HDFC Bank is HDFC Bank.

So many people trying to find the next HDFC Bank.

HDFC Bank came out with its IPO in 1995 at an issue price of ₹10. The issue was over subscribed 55 times and the stock listed at ₹40, a huge premium for a bank that was just a year old. 1/n

Someone who had invested ₹10,000 in the IPO would have got 1,000 shares. After 2 splits, the investor would now have 10,000 shares. At the CMP, the worth of these would be ₹1.03 crore. That is a staggering 1000 times in a span of 25 years, translating into a CAGR of 32%. 2/n

That too without considering dividends. The bank wasn't able to declare any dividend in FY20 due to RBI regulations. But, the dividend in FY19 was ₹10 per share, meaning that the IPO investor would have got ₹1 lakh in dividends in FY19 - 10 times his initial investment. 3/n

But the bigger question is, can the compounding engine continue?

"The best of HDFC Bank is yet to come." - Aditya Puri

How many people trying to understand what HDFC bank will become in the coming years? 4/n

Many raised doubt of HDFC bank after Mr. Puri sold shares worth Rs 843 cr.

Mr. Puri said “the best yet to come”. He and his team set target to achieve Rs 25 lakh cr loan book by 2025. Team set three priorities for the bank. 5/n

To digitise and take services across length and breadth of the country, to increase penetration in semi-urban and rural India, train people and offer the widest product range.

6/n

Let's find out. The total credit market in India is just over $1.9T. HDFC Bank has a loan book of ~₹11 lakh crore, which is roughly $160B. This means HDFC Bank has just 8% market share in the credit market.

7/n

Credit market grows at 1.25-1.5 times the nominal GDP in any developing economy. We can safely say that the credit market will be growing in double digits over the next couple of decades.

PSU banks control nearly the 2/3rd of credit market, and as we have seen, 8/n

this has consistently been decreasing. The reason for this is that the PSU banks are not able to grow because of low capital adequacy. Almost all of the growth is captured by the private sector.

They have huge other income which contributes >50% to the PAT. 9/n

This other income includes fee income, forex, derivatives and commissions for selling products of group companies (AMC, insurance, home loans). HDFC Bank is a dominant leader in the credit cards space with a market share of 28%. 10/n

It is the largest collector of direct/indirect taxes, increasing huge float. At to this their low cost funding (CASA), with the interest on savings only 2.75%

With huge opportunity size, they don't need to run behind people/companies with low credit score. 11/n

They simply get the cream of customers, which turn maintains a high quality loan book. The bank also has good technology in place, leaving the threat from FinTe behind. They have also emerged with a Smartbuy platform where you can book flight,train tickts,shop on ecommerce. 12/n

This will lead to more transaction and more fee income.
The bank can be seen as a fee-generating machine - which is a strong moat. A low-cost franchise - giving stability in their NIMs. Grabbing huge incremental market share. A highly prudent lending process, having huge 13/n

provision - giving a safety net during the downswings. They also have 2 subsidiaries in HDB financial services and HDFC securities, which can unlock value via an IPO.
HDB financial is giving Bajaj finance a good competition in the consumer durable lending space. 14/n

The effect of Aditya Puri's retirement is to be seen, but it is highly likely that the organisation is a process oriented one, and the CEO change will most likely be a smooth process.

HDFC Bank can still compound at a good enough.
#HDFCBANK n/n @threadreaderapp