HDFC Bank case study 2021

HDFC Bank Case Study 2021 – Industry, SWOT, Financials & Shareholding

HDFC Bank Case Study and analysis 2021: In this article, we will look into the fundamentals of HDFC Bank, focusing on both qualitative and quantitative aspects. Here, we will perform the SWOT Analysis of HDFC Bank, Michael Porter’s 5 Force Analysis, followed by looking into HDFC Bank’s key financials. We hope you will find the HDFC Bank case study helpful.

Disclaimer: This article is only for informational purposes and should not be considered any kind of advisory/advice.  Please perform your independent analysis before investing in stocks, or take the help of your investment advisor. The data is collected from Trade Brains Portal.

About HDFC Bank and its Business Model

Incorporated in 1994, HDFC Bank is one of the earliest private sector banks to get approval from RBI in this segment. HDFC Bank has a pan India presence with over 5400+ banking outlets in 2800+ cities, having a wide base of more than 56 million customers and all its branches interlinked on an online real-time basis.

HDFC Limited is the promoter of the company, which was established in 1977. HDFC Bank came up with its 50 crore-IPO in March 1996, receiving 55 times subscription. Currently, HDFC Bank is the largest bank in India in terms of market capitalization (Nearly Rs 8.8 Lac Cr.). HDFC Securities and HDB Financial Services are the subsidiary companies of the bank.

HDFC Bank primarily provides the following services:

  • Retail Banking (Loan Products, Deposits, Insurance, Cards, Demat services, etc.)
  • Wholesale Banking (Commercial Banking. Investment Banking, etc.)
  • Treasury (Forex, Debt Securities, Asset Liability Management)

HDFC Bank Case Study – Industry Analysis

There are 12 PSU banks, 22 Private sector banks, 1485 urban cooperative banks, 56 regional rural banks, 46 foreign banks and 96,000 rural cooperative banks in India. The total number of ATMs in India has constantly seen a rise and there are 209,110 ATMs in India as of August 2020, which are expected to further grow to 407,000 by the end of 2021.

In the last four years, bank credit recorded a growth of 3.57% CAGR, surging to $1698.97 billion as of FY20. At the same time, deposits rose with a CAGR of 13.93% reaching $1.93trillion by FY20. However, the growth in total deposits to GDB has fallen to 7.9% in FY20 owing to pandemic crises, which was above 9% before it.

Due to strong economic activity and growth, rising salaries, and easier access to credit, the credit demand has surged resulting in the Credit to GDP ratio advancing to 56%. However, it is still far less than the developed economies of the world. Even in China, it is revolving around 150 to 200%.

As of FY20, India’s Retail lending to GDP ratio is 18%, whereas in developed economies (US, UK) it varies between 70% – 80%).

Michael Porter’s 5 Force Analysis of HDFC Bank

1. Rivalry Amongst Competitors

  • The banking sector has evolved very rapidly in the past few years with technology coming in, and now it is not only limited to depositing and lending but various categories of loans and advances, digital services, insurance schemes, cards, broking services, etc.; hence, the banks face stiff competition from its rivals.

2. A Threat by Substitutes

  • For services like mutual funds, investments, insurances, categorized loans, etc., banks are not the only option these days because a lot of niche players have put their foot in the specialized category, surging the threat by substitutes for the banks.
  • Another threat for the traditional banks is NEO Banks. The Neo Banks are virtual banks that operate online, are completely digital, and have a minimum physical presence.

3. Barriers to Entry

  • Banks run in a highly regulated sector. Strict regulatory norms, huge initial capital requirements and winning the trust of people make it very tough for new players to come out as a national level bank in India. However, if a company enters as a niche player, there are relatively fewer entry barriers.
  • With RBI approving the functioning of new small finance banks, payment banks and entry of foreign banks, the competition has further intensified in the Indian banking sector.

4. Bargaining Power of Suppliers

  • The only supply which banks need is capital and they have four sources for the capital supply viz. deposits from customers, mortgage securities, loans, and loans from financial institutions. Customer deposits enjoy higher bargaining power as it is totally dependent on income and availability of options.
  • Financial Institutions need to hedge inflation, and banks are liable to the rules and regulations of the RBI which makes them a safer bet; hence, they have less bargaining power.

5. Bargaining Power of Customers

  • In modern days, customers not only expect proper banking but also the quality and faster services. With the advent of digitalization and the entry of new private banks and foreign banks, the bargaining power of customers has increased a lot.
  • In terms of lending, creditworthy borrowers enjoy a high level of bargaining power as there is a large availability of banks and NBFCs which are ready to offer attractive loans and services at low switching and other costs.

HDFC Bank Case Study – SWOT Analysis

Now, moving forward in our HDFC Bank case study, we will perform the SWOT analysis.

1. Strengths

  • Currently, HDFC Bank is the leader in the retail loan segment (personal, car and home loans) and credit card business, increasing its market share each year
  • The HDFC tag has become a sign of trust in the people as HDFC has come out as a pioneer not only in banking, but loans, insurances, mutual funds, AMC and brokerage.
  • HDFC Bank has always been an institution of its words as it has, without fail, delivered its guidance and this has created a strong brand loyalty in the market for them.
  • HDFC Bank has very well leveraged the technology to help its profitability, only 34% transaction via Internet Banking in 2010 to 95% transaction in 2020.

2. Weaknesses

  • HDFC bank doesn’t have a significant rural presence as compared to its peers. Since its inception, it has focused mainly on high-end clients. However, the focus is shifting in the recent period as nearly 50% of its branches are now in semi-urban and rural areas.

3. Opportunities

  • The average age of the Indian population is around 28 years and more than 65% of the population is below 35, with increasing disposable income and rising urbanization, the demand for retail loans is expected to increase. HDFC Bank, being a leader in retail lending, can make the best out of this opportunity.
  • With modernization in farming and a rise in rural and semi-urban disposable income, consumer spending is expected to rise. HDFC Bank can increase its market share in these segments by grabbing this opportunity. Currently, the bank has only 21% of the branches in rural areas.

4. Threats

  • A lot of niche players have set up their strong branches in respective segments, which has shown stiff competition and has shrined the market share and profit margin for the company. Example – Gold Loans, Mutual Funds, Brokerage, etc.
  • In-Vehicle Financing (which is HDFC Bank’s major source of lending income), most of the leading vehicle companies are providing the same service, which is a threat to the bank’s business.

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HDFC Bank’s Management

HDFC Bank has set high standards in corporate governance since its inception.

Right from sticking to their words to proper book writing, HDFC has never compromised with the banking standards, and all the credit goes to Mr. Aditya Puri, the man behind HDFC Bank, who took the bank to such great heights that today its market capitalization is more than that of Goldman Sachs and Morgan Stanley of the US.

In 2020, after 26 years of service, he retired from his position in the bank and passed on the baton of Managing Director to Mr. Shasidhar Jagadishan. He joined the bank as a Manager in the finance function in 1996 and with an experience of over 29 years in banking, Jagadishan has led various segments of the sector in the past.

Financial Analysis of HDFC Bank

  • 48% of the total revenue for HDFC bank comes from Retail Banking, followed by Wholesale Banking (27%), Treasury (12%), and 13% of the total comes from other sources.
  • Industries receive a maximum share of loans issued by HDFC bank, which is 31.7%, followed by Personal Loans and Services both at a 28.7% share of the total. Only 10.9% of the total loans are issued to Agricultural and allied activities.
  • HDFC Bank has a 31.3% market share in credit card transactions, showing a growth of 0.23% from the previous fiscal year, which makes it the market leader, followed by SBI.
  • HDFC Bank is the market leader in large corporate Banking and Mid-Size Corporate Banking with 75% and 60% share respectively.
  • In Mobile Banking Transaction, the market share of HDFC bank is 11.8%, which has seen a degrowth of 0.66% in the current fiscal year.
  • With each year, HDFC Bank has shown increasing net profit, which makes the 1-year profit growth (24.57%) greater than both 3-year CAGR (21.75%) and 5-year CAGR (20.78%).
 CAR
HDFC Bank18.52
ICICI Bank16.11
Kotak Mahindra Bank17.89
Axis Bank17.53
IndusInd Bank15.04
Bandhan Bank27.43
  • Capital Adequacy Ratio, which is a very important figure for any bank stands at 18.52% for HDFC Bank.
  • As of Sept 2020 HDFC, is at the second position in bank advances with a 10.1% market share, which has shown a rise from 9.25% a year ago. SBI tops this list with a 22.8% market share, Bank of Baroda is at the third spot with a 6.68% share, followed by Kotak Mahindra Bank (6.35%).
  • HDFC Bank is again at the second spot in the market share of Bank deposits with 8.6%. SBI leads with a nearly 24.57% market share. PNB holds 7.5% of the market share in this category, coming out as the third followed by Bank of Baroda with 6.89%.

HDFC Bank Financial Ratios

1. Profitability Ratios

  • As of FY20, the net profit margin for the bank stands at 22.87%, which has seen a continuous rise for the last 4 fiscal years. This a very positive sign for the bank’s profitability.
  • The Net Interest Margin (NIM) has been fluctuating from the range of 3.85% to 4.05% in the last 5 fiscal years. Currently, it stands at 3.82% as of FY20.
  • Since FY16, there has been a constant fall in RoE, right from the high of 18.26% to 16.4% as of FY20.
 NPMNIMRoERoA
HDFC Bank22.873.8216.41.89
ICICI Bank10.63.287.250.77
Kotak Mahindra Bank22.083.8813.081.77
Axis Bank2.63.052.150.19
IndusInd Bank15.354.2614.711.51
Bandhan Bank27.78722.914.08
  • RoA has been more or less constant for the company, currently at 1.89%, which is a very positive sign.

2. Operational Ratios

  • Gross NPA for the bank has fallen from FY19 (1.36) to 1.26, which a positive sign for the company. A similar improvement is also visible in the Net NPA, currently standing at 0.36.
  • The CASA ratio for the bank is 42.23%, which has been seeing a continuous fall since FY17 (48.03%). However, there has been a spike rise in FY17 as in FY16, it was 43.25 and in FY18, again came to the almost same level of 43.5.
  • In FY19, Advance Growth witnessed a massive spike from 18.71 level in FY18 rising to 24.47%. However, in FY20, it again fell nearly 4 points, coming down to 21.27%.
 Gross NPANet NPACASAAdvance Growth
HDFC Bank1.260.3642.2321.27
ICICI Bank1.5445.1110
Kotak Mahindra Bank2.30.7156.176.83
Axis Bank4.861.5641.215.49
IndusInd Bank2.450.9140.3710.94
Bandhan Bank1.480.5836.8468.07

HDFC Bank Case Study – Shareholding Pattern

  1. Promoters hold 26% shares in the bank, which has been almost at the same level for the last many quarters. In the December quarter a years ago, the promoter holding was 26.18%. The marginal fall is only due to Aditya Puri retiring and selling few shares for his post-retirement finance, which he stated.
  2. FIIs own 39.95% shareholding in the bank, which has been increasing for years in every quarter. HDFC bank has been a darling share in the investor community.
  3. 21.70% of shares are owned by DIIs as of December Quarter 2020. Although it is less than the SeptQ2020(22.90%), it is still far above the year-ago quarter (21.07).
  4. Public holding in HDFC bank is 12.95% as of Dec Q2020, which has tanked from the year-ago quarter (14.83%) as FIIs increasing their share, which is evident from the rising share prices.

Closing Thoughts

In this article, we tried to perform a quick HDFC Bank case study. Although there are still many other prospects to look into, however, this guide would have given you a basic idea about HDFC Bank.

What do you think about HDFC Bank fundamentals from the long-term investment point of view? Do let us know in the comment section below. Take care and happy investing!

Infosys Case Study 2021 - Industry, SWOT, Financials & Shareholding

Infosys Case Study 2021 – Industry, SWOT, Financials & Shareholding

Infosys Case Study and analysis 2021: In this article, we will look into the fundamentals of Infosys, focusing on both qualitative and quantitative aspects. Here, we will perform the SWOT Analysis of Infosys, Michael Porter’s 5 Force Analysis, followed by looking into Infosys key financials. We hope you will find the Infosys case study helpful.

Disclaimer: This article is only for informational purposes and should not be considered any kind of advisory/advice.  Please perform your independent analysis before investing in stocks, or take the help of your investment advisor. The data is collected from Trade Brains Portal.

About Infosys and its Business Model

In 1981, Narayana Murthy with a team of six members incorporated Infosys in Pune with an initial capital of just $250 and within the very first year itself, they locked in the deal with Data Basics Corporation of New York.

The theme of the organization is “Sustainable and Resilient” and since its inception, the company has been delivering sustainable solutions. Currently, the company is heavily investing in digital platforms like Data Analysis, Agile Technology, Artificial Technology, Cloud Infrastructure, etc. 

Infosys primarily provides the following products and services :

  • IT Services (Application Services, IMS, SOA Services, Infrastructure Services, etc.)
  • Engineering Services (Product Engineering, Manufacturing Process, IT Strategies, etc.)
  • BPO Services (Business Platforms, Human Resource Outsourcing, Order Management, etc.)
  • Product and Platforms (Finacle, Infosys ActiveDesk, Infosys Mconnect)

As of FY20, the company has a client base of 1411, which has shown a growth of CAGR 6.62% in the last 4 years. Infosys BPO, Infosys Consulting, Infosys Australia, Infosys China and Infosys Mexico are the subsidiary companies of Infosys. It also has its offices in the top cities of the world like Singapore, New York, Tokyo, Shanghai, etc.

Infosys Case Study – Industry Analysis

As of FY20, the IT-BPM industry of India is worth USD 191 billion, which has been growing 7.7% y-o-y and by 2025, it is estimated to reach USD 350 billion. The Digital Segment has seen rapid growth in recent years and is expected to cover around 38% revenue of the entire industry.  As of FY20, 147 billion USD was contributed by the export revenue and the domestic revenue was at US$40 billion.

Indian IT industry exports to more than 80 countries across the world with over 1000 global delivery centres. IT sector of India attracts the second largest FDI inflows as per the report by the Department for Promotion of Industry and Internal Trade.  Currently, India leads the world in sourcing destinations with 75% of global digital talent present in the nation.

As per NITI Aayog, by 2035, Artificial Intelligence can boost the nation’s annual growth rate by 1.3%. Currently, the IT industry of India contributes 7.7% to the country’s GDP and is expected to increase its contribution to 10% by 2025. With the growth of AI, Data Analytics and IoT, the demand of India’s cloud market is expected to reach USD 7.1 billion by the end of 2022, signifying a triple fold jump.

Michael Porter’s 5 Force Analysis of Infosys

1. Rivalry Amongst Competitors

  • IT Industry is a very competitive one with every leading company providing almost similar solutions. Moreover, the competition is not only limited to the nation itself but beyond the boundaries, too as many countries like China are working briskly to provide technologically advanced services at a cheaper cost.

2. A Threat by Substitutes

  • With the world getting greatly dependent on technology, there is almost no substitute for it. In the case of ITeS and BPO segments, the companies can still develop their IT department. However, this trend has witnessed a continuous fall as companies feel that it is better to outsource and focus on their core business rather than investing in the IT department.

3. Barriers to Entry

  • As the IT industry is hugely capital intensive and with rich talent in the digital space, the barriers to entry in the IT Industry are not very high. With the government also extending its help to new tech startups, the competition in this industry is increasing.
  • As technology is changing every second, new companies have to focus on innovation because outdated technology gets no importance, which requires a regular flow of skill and cash. However, some focused niche-based startups can eat up a huge market share of the existing companies. For example, AI, IoT, etc.

4. Bargaining Power of Suppliers

  • India is rich in skilled IT labor, having more than 75% of the global digital talent, that too at a very cheap cost. Moreover, the business is not concentrated on a limited group and the work is distributed over many divisions, which decreases the bargaining power of suppliers.

5. Bargaining Power of Customers

  • Bargaining power in the case of customers is a two-way variable. At first, customers enjoy a very high bargaining power as there are various companies providing quality solutions but when they get installed with the products, the increasing switching costs result in a fall in bargaining power for them. As the company gets dependent on the IT partner for all future updates and technological developments, the bargaining power of customers decreases.

Infosys Case Study – SWOT Analysis

Now, moving forward in our Infosys case study, we will perform the SWOT analysis.

1. Strengths

  • The company has a wonderful brand value and is one of the pioneers in the IT sector as it has been providing end-to-end world-class business solutions consistently. The company enjoys a huge cash reserve with one of the finest corporate governances.
  • Since its inception, the company has been highly focusing on innovation and strengthening its roots in the new technologies especially AI, IoT, etc.

2. Weaknesses

  • Even though the company has made a strong presence worldwide, it still lags in making its dominance within the boundaries of the nation.
  • Nearly 85% of the business is concentrated in North America and few countries of Europe, which makes the business prone to unwanted volatilities and uneven growth.
  • The company is not efficiently focusing on growing economies that are seeing a massive development into technology.
  • As the company is one of the biggest mass recruiters of the nation, it faces a high rate of attrition. This means a lot of employees leave the company for better pay and job, which deteriorates the company’s image.

3. Opportunities

  • Infosys can focus on the emerging economies of the world as the demand for technology will rise hugely there and it can acquire a big market share in those countries coming out as their market leader in the future.
  • As the company has a huge pile of cash in its reserve, it can use it in R&D for the latest technologies, developing world-class products and entering new segments. For example, cloud-based solutions.
  • With the government’s major focus on the digitalization of its undertakings, Infosys can play an important role in the same. Especially in the BFSI sector where Infosys has done a terrific job in the past.

4. Threats

  • As most of the company’s revenue is earned in dollars and euros, it imposes a currency risk on the earnings of the company.
  • Infosys faces stiff competition from its competitors. Well-established companies like TCS, Accenture, etc. eat up the market share. Moreover, intense competition leads to a contraction in margins and a force to invest in the latest technologies.

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Infosys Management

Nandan Nilekani, who co-founded the company with Narayana Murthy, is the current chairman of the board for Infosys. IITian by degree, he was awarded Padma Bhusan in 2006 and held numerous awards in the corporate world.

Salil Parekh is the Chief Executive Officer and Managing Director of the company, who has more than three decades of experience in the IT services industry. In Jan 2014, Mr Pravin Rao joined the board of the company and he is the COO and Whole-time Director of the same.

Kiran Mazumdar-Shaw, who is also the chairperson and MD of Biocon Limited, is the Lead Independent Director of the company. There are a total of 4 Independent Directors on the board.

Financial Analysis of Infosys

  • Financial Services contribute the maximum for the company (32%), followed by Retail (16.4%). Both Energy Utilities and Communication contribute 12.6% in the total revenue of the company, 9.9% by Manufacturing. Life Sciences and Hi-Tech contribute 6.3% and 7.5% respectively.
  • 60.5% of the company’s business is from North America, followed by Europe which contributes 24.1%. Only 2.5% of the total business is based in India and 12.9% comes from the rest of the world.
  • The company has a 4% software testing services segment market share.
  • As of Mar’20, the company spends 0.91% on R&D as a % of total sales which is falling with every quarter. In Dec’20, Constant Currency Growth in the BFSI sector almost doubled to 12% from the level of 6.2% in the same period the previous year.
  • As of FY20, the Net Profit Margin for the company is 18.33%, which has been continuously falling for the last few years, especially from the level of 22.83% in FY18. However, the 3-year average stands at 19.93%.

  • 3 Year CAGR Revenue Growth for the company is 9.85% which is almost the same as the last year’s data (9.82%). However, Net Profit Growth has shown a great rise, as in FY20, it was at 7.73% and 3 Yrs CAGR for the same is 4.95%.
  • The company has one of the finest cash flow statements. Cash Flow from Operating Activities has been rising tremendously year after year and so is the outflow in cash flow in financial services; hence, the company pays a good dividend every year from the cash they receive.

Infosys Financial Ratios

1. Profitability Ratios

  • In FY 2016, EBITA Margin for the company was 27.28% and from this level, it has fallen continuously year by year. As of FY20, EBITDA Margin  is at 23.96%
  • Return on Equity for the company has shown a rise in the recent few financial years. As of FY17, RoE for the company was 22.03% which has shown a rise to the level of 25.62% in FY20. The 3 Yr. average RoE for the company is 24.50%.
 EBITA MarginRoE
RoCERoA
TCS26.8337.650.0228.17
Infosys23.9625.6234.0119.08
Tech Mahindra18.9218.9221.4411.26
HCL Tech24.4523.8728.4216.18
Wipro20.1917.5520.0511.98
  • An almost similar trend can also be noticed in RoCE, it has risen from the level of 30.57% in FY17 to 34.01% in FY20. The 3 Yr. average RoCE for the company is 32.26%.

2. Leverage Ratios

  • Quick Ratio and Current Ratio for the company is far above the threshold levels of 2.62% each, which is a very positive sign for the company’s liquidity position.
  • Infosys enjoys a debt-free status and has an Interest Coverage Ratio of 130.45.

 Quick RatioCurrent RatioInterest Coverage RatioD/E
TCS3.333.3346.720
Infosys2.622.62130.450
Tech Mahindra2.122.1227.390.012
HCL Tech1.621.6228.680.1
Wipro2.392.417.720.14

3. Efficiency Ratios

  • The Asset Turnover Ratio for the company is 1.04 as of FY20, which showed an improvement from the level of 0.87 in FY17. This can also be deduced from the increased RoE in the same period as NPM growth is muted for that period.
  • Receivable days for Infosys have increased from the level of 61.74% in FY19 to 66.96% in FY20, indicating the buyers’ bargaining power. Payable days for the company have also increased from the level of 8.9% in FY19 to 15.03% in FY20, which shows the company’s bargaining power over the suppliers.
 Asset Turnover RatioReceivable DaysPayable Days
TCS1.3667.325.8
Infosys1.0466.9684.46
Tech Mahindra1.0671.9547.63
HCL Tech1.0366.7211
Wipro0.7561.1861.49

Infosys Case Study – Shareholding Pattern

  1. 12.95% shares are owned by the promoters of the company without any pledging of shares, which has been more or less constant from the previous few quarters.
  2. FIIs have slightly increased their shareholding from the level of 30.47 in June 2020 Q to 32.26% in the latest quarter. 
  3. As of Dec 2020 quarter, DIIs own 23.75% of the company, which has come down from the level of 25.42% in June 2020 Q.
  4. 13.78% shareholding is by the public, which has been almost constant for the last few quarters. Also, 17.26% of owners are others who have shown a similar trend.

Closing Thoughts

In this article, we tried to perform a quick Infosys case study. Although there are still many other prospects to look into, however, this guide would have given you a basic idea about Infosys.

What do you think about Infosys fundamentals from the long-term investment point of view? Do let us know in the comment section below. Take care and happy investing!