HDFC Bank: Samir Arora, founder and fund manager at Helios Capital Management, has revived his old take on HDFC Bank’s margin challenge, reposting his March 2024 social media post with the caption, “No one listens to me”.
Sashidhar Jagdishan declines reappointment
In his March 2024 post, Arora had offered a tongue-in-cheek “solution” to HDFC Bank’s net interest margin (NIM) challenge following its merger with Housing Development Finance Corporation (HDFC Ltd).
Arora had noted that HDFC Bank’s NIM was around 4.3 per cent before the merger, while HDFC Ltd had a margin of about 2.7 per cent. After the merger, the combined entity’s NIM stood at around 3.6 per cent.
His suggestion was to change HDFC Bank’s name to HDFC Ltd.
Under his humorous scenario, the bank could then tell analysts that it previously had a margin of 2.7 per cent and had managed to increase it to 3.6 per cent after merging with HDFC Bank.
He then imagined an analyst congratulating the management for the “phenomenal improvement” in performance.
Arora ended the original post with a tongue-in-cheek note: “Interested, last 3 yrs tested and invested.”
More than two years later, Arora has reposted the same commentary with just four words: “No one listens to me.”
HDFC Bank share price target after Jagdishan’s exit
The leadership change has also triggered fresh assessments of HDFC Bank’s stock among brokerages, with Bernstein, Morgan Stanley and Nuvama sharing their views and revised price targets.
Nuvama sees over 21 per cent upside
Nuvama maintained its BUY recommendation on HDFC Bank but reduced its share price target to Rs 875 from Rs 1,025. The revised target implies an upside potential of around 21.5 per cent for the stock.
The brokerage said Jagdishan’s exit creates a path for a credible successor. Despite governance concerns, Nuvama does not view the leadership change as a fundamental impairment to HDFC Bank’s strong franchise and recovery prospects.
Morgan Stanley maintains ‘OVERWEIGHT’
Morgan Stanley retained its OVERWEIGHT rating on HDFC Bank with a target price of Rs 1,025, implying an upside of around 42 per cent.
The brokerage sees deep value in the stock compared with its fundamentals and historical levels. It also noted that the CEO reappointment issue had been an overhang, while gradually improving fundamentals could support a recovery in HDFC Bank shares.
Bernstein sees 46 per cent upside
Bernstein maintained its OUTPERFORM rating on HDFC Bank with a target price of Rs 1,150, implying an upside potential of around 46 per cent.
The brokerage believes Jagdishan’s planned retirement removes concerns around a potentially RBI-restricted short-term tenure. It sees an opportunity for the incoming CEO to reset HDFC Bank’s narrative, although the bank has struggled to consistently meet market expectations.
Why margins remain a key issue
Arora’s post also brings attention back to one of the key issues that has remained central to HDFC Bank’s post-merger story, its margin profile.
The merger with HDFC Ltd, completed in July 2023, significantly changed HDFC Bank’s balance sheet and asset mix. HDFC Ltd’s housing finance business had a lower margin profile than the bank’s traditional lending business, resulting in pressure on the combined entity’s NIM.
The bank has since been working on improving its deposit franchise, managing funding costs and growing its loan book while maintaining asset quality.
Jagdishan’s exit and the next phase
Jagdishan will step down as MD and CEO when his current term ends on October 26, 2026. He became HDFC Bank’s MD and CEO in October 2020 and subsequently led the lender through its merger with HDFC Ltd.
The succession process will now be closely watched as HDFC Bank enters its next phase.
For investors, the key questions will be whether the new leadership can accelerate growth, improve the bank’s margin profile and change the post-merger narrative around the lender.
For Arora, meanwhile, the latest repost is a callback to a question that has followed HDFC Bank since the merger: how quickly can the lender restore its margin profile while delivering stronger growth?
His “rename the bank” solution was clearly intended as humour. But by reposting it now with “No one listens to me”, Arora has once again put the spotlight on the margin issue – this time against the backdrop of a major leadership transition and renewed expectations around HDFC Bank’s stock.
(Disclaimer: The above article is meant for informational purposes only, and should not be considered as any investment advice. ET NOW DIGITAL suggests its readers/audience to consult their financial advisors before making any money-related decisions.)
