HDFC Bank's stock will remain in focus on October 4 as the bank restructures its top management post a merger with HDFC Ltd in July. This is the second reorganization since Sashidhar Jagdishan took over as managing director and chief executive officer in October 2020, succeeding Aditya Puri.
The bank communicated the changes in a memo to employees on October 1, as per reports. Information technology and digital functions, led by Ramesh Lakshminarayanan, now report directly to CEO Sashidhar Jagdishan as the bank emphasizes on technology for expanded services. Ashish Parthasarthy, a veteran of the bank, will oversee the crucial retail branch business, including deposits and product distribution.
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Parthasarthy is restructuring the retail branch business geographically for better expansion and product management. Smita Bhagat and Sampath Kumar will co-lead this effort. Bhagat, a senior leader at the bank, handled government, institutional, ecosystem, inclusive banking, and start-ups. Kumar managed liability products, third-party products, and non-resident business, CNBCTV18 reported.
"This may aim to enhance execution to (1) drive growth in mortgages, where Mr. Arvind Kapil will get exclusive charge and (2) optimise branch ramp-up where responsibilities will be split geographically. IT & Digital also get a needed direct reporting to CEO. Ramp-up of deposits & housing book will be key to growth & investor comfort", said Jefferies India in its latest note. The brokerage house stayed its buy rating on the stock and increased its target price to Rs 2030 a share, up 33 percent from current market price.
HDFC Bank's stock has declined by over 9 percent in the past three weeks following the takeover of HDFC Ltd. However, analysts consider it to be trading at attractive valuations (2.1x Mar’25E ABV and ~13x EPS) and believe it offers a favorable risk-reward for long-term investors. They anticipate that as growth and earnings gradually recover, the stock's performance will improve.
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The stock closed at Rs 1508.05 on the NSE on October 3.
Meanwhile, post merger, analysts expects HDFC Bank to experience a near-term decline in net interest margin (NIM), net worth, and asset quality after merging with parent company HDFC. HDFC Bank's CFO Srinivasan Vaidyanathan noted a potential 25 basis point NIM contraction due to increased CRR and excess liquidity post-merger.
This could result in lower earnings for the bank in the second quarter, with the merged entity's margin estimated at 3.7-3.8 percent in June, down from the bank's previous standalone margin of 4.1 percent. Analysts, including Macquarie, suggest this may affect the bank's near-term return on assets (RoA).
Also Read: HDFC Bank Q2 update: Advances jump 57%, home loan grows 10% post merger
"HDFC Bank is not going to rally in a hurry and there will be more of a selling pressure. Some of the technical indicators are in the oversold territory.. the stock is very close to its support zone of Rs 1470-1500. This is the zone where it could see some respite. But sustaining these levels will be difficult. If it does bounce back, it will meet with immediate resistance of Rs 1560-1600 levels", said Aamar Deo Singh, AngelOne.
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