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Analyst Blog

On Dec 23, 2013, we upgraded HDFC Bank Ltd. (HDB - Analyst Report) to Outperform from Underperform based on its impressive fiscal second-quarter (ended Sep 30) 2014 results. Moreover, the bank has been able to increase market share in India’s banking and financial services sector through its exceptional customer service and diverse products.

Why the Upgrade?

HDFC Bank’s fiscal second-quarter net income was up 27.1% year over year. Increased revenues were partially offset by higher operating expenses. Moreover, there was considerable improvement in the company’s deposits and loans as well as credit quality.

HDFC Bank remains focused on increasing earnings through conservative risk management techniques and low-cost funding. At the same time, the bank does not relying much on volatile sources such as trading and investment banking income.

Moreover, economic growth, higher income levels and low interest rates in India have generated a growth momentum in the Indian retail credit market. Hence, the Retail Banking segment is expected to be a major growth driver for the company. With its widespread branch network and strong brand equity, HDFC Bank has been able to garner a large share of the retail credit market.

Notably, over the last 60 days, the Zacks Consensus Estimate for fiscal 2014 and fiscal 2015 has remained stable at $1.74 per share and $2.19 per share, respectively. Hence, HDFC Bank currently has a Zacks Rank #3 (Hold).

Other Stocks to Consider

Other better-placed foreign banks include Grupo Financiero Galicia S.A. (GGAL - Snapshot Report), BBVA Banco Franc (BFR - Snapshot Report) and Banco Santander, S.A. (SAN - Snapshot Report). While Grupo Financiero carries a Zacks Rank #1 (Storng Buy), BBVA Banco Franc and Banco Santander have a Zacks Rank #2 (Buy).

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