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Most-Valuable India Bank Falls as Bernstein Slashes Price Goal

Bernstein downgrades HDFC Bank to underperform, cites “idiosyncratic risks” 

Most-Valuable India Bank Falls as Bernstein Slashes Price Goal
A man walks towards an HDFC Bank Ltd. branch in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

(Bloomberg) -- Shares of HDFC Bank Ltd. fell after Sanford C. Bernstein & Co. downgraded India’s most valuable lender by market capitalization, citing risks to its loans from disruptions caused by the novel coronavirus outbreak.

“In the current pandemic driven environment, we believe HDFC Bank carries certain idiosyncratic risks and unique management challenges,” according to the Bernstein note Thursday. “HDFC Bank’s portfolio is most exposed to unsecured consumer credit risk versus peer private banks.”

The lender’s “non-proactive handling” of the management succession, with Chief Executive Officer Aditya Puri set to step down later this year, could also impact HDFC Bank’s preferred status among investors, Bernstein said. Foreign investors hold about 38% of the bank’s shares.

Most-Valuable India Bank Falls as Bernstein Slashes Price Goal

While HDFC Bank has largely skirted the default surge at business groups as well as the crisis in India’s shadow lending sector, it’s vulnerable to weakening consumer demand as the nation’s economic growth slows. The Mumbai-based bank has formed a panel to identify a successor to Puri, who has said his replacement should be better than him and shouldn’t require months of hand-holding for the job.

Bernstein cut its recommendation on the stock to underperform from market-perform and slashed the share price target to 750 rupees from 1,400 rupees. HDFC Bank fell 2.5% to 873.50 rupees a share as of 12:48 p.m. in Mumbai on Thursday, after dropping as much as 7.9% earlier.

Representatives for HDFC Bank didn’t immediately reply to an email seeking comment. The lender has so far stood out in the banking sector with its gross-bad-loan ratio holding steady at around 1.4% of total advances.

©2020 Bloomberg L.P.