HDFC Bank price-to-book value at its lowest in 20 years, quarterly results were 'sparkling': Saurabh Mukherjea

HDFC Bank is trading at 'mouth-watering' valuations with price-to-book at its lowest in 20 years, said Saurabh Mukherjea, Founder of Marcellus Investment Managers. The bank's quarterly results were 'sparkling' if you strip out HDFC numbers, he added.

The estimated book value of HDFC Bank for the financial year 2024 (FY24E) is at ₹579, per projections by broking firm Motilal Oswal. At the current price of around ₹1,530, the stock is trading at a price-to-book value of 2.6x FY24E.

Motilal Oswal has a 'buy' rating on the stock with a price target of ₹1,950 per share, which is over a 27% upside from the current levels.

Marcellus Investment Managers already has a substantial holding in HDFC Bank but Mukherjea expects it to become an even more significant part of the fund's holdings.

When the HDFC Bank and HDFC merged on July 1, the gross non-performing asset ratio (GNPA) was 1.41 and three months on, it is at 1.34, he said referring to investors' worry about a spike in post-merger NPAs.

HDFC Bank, on October 16, reported a 9.3% rise in net profit at ₹15,976 crore for the quarter ending September 2023. The net interest income (NII) was at ₹27,385 crore. However, the numbers are not directly comparable on a quarter-on-quarter (QoQ) or year-on-year (YoY) basis due to the lender's merger with Housing Development Finance Corporation (HDFC) on July 1, 2023.

Mukherjea also talked about other major quarterly results. He praised the management of Bajaj Finance, HDFC Bank, and Asian Paints, stating that they have exceptional leadership comparable to the best in the world.

Bajaj Finance has a smart capital-raising strategy, he said, pointing out that they consistently raise funds during favorable market conditions. Mukherjea expressed his satisfaction as a shareholder in Bajaj Finance, particularly in light of their recent results announced on October 17.

Bajaj Finance posted a 27.8% increase in net profit for the September quarter, at ₹3,550.8 crore, compared to ₹2,781 crore in the year-ago period. The net interest income (NII), or the difference between the interest earned and the interest paid, grew 26.3% on a year-on-year basis to ₹8,845 crore.

Among other things, Mukherjea also highlighted the shift in India from 'mass consumption' to 'class consumption'.

"The era of mass consumption, in terms of purchases of low-cost apparel, footwear, etc., is behind us. We are in an era where affluent, well-educated people earn more money and are moving toward class consumption," he said. He pointed out that the Income Tax (IT) data suggests that the number of people with income levels above a crore per annum has nearly doubled in the last five years.

On the potential impact on crude prices from the ongoing Israel-Palestine conflict, he said, "I am not so sure that the impact on crude is that meaningful."