Is HDFC Bank Limited (HDB) the High Growth Financial Stock to Invest In?

HDFC Bank Limited (HDB) has been a prominent player in the Indian banking sector, consistently delivering strong financial performance and growth. As of February 1, 2025, the bank's share price stands at INR 1,749.65, reflecting an increase of 0.80% (+13.85) at market close. With a market capitalization of INR 13.351 trillion and a beta of 0.83, HDB offers investors an opportunity to consider its potential as a high-growth financial stock. This article will delve into the key growth drivers, financial performance, and valuation metrics of HDFC Bank Limited to help investors make an informed decision.



Key Growth Drivers

1. Deposit Growth: HDFC Bank's deposit growth has been robust, with retail branches contributing 84% of the total deposits and a year-on-year growth of 15% in the second quarter of 2025. This growth in deposits is higher than the system-level deposit growth of 9.8% and is a significant driver of the bank's revenue.
2. Advances Under Management: The bank has achieved a year-on-year growth of 10.2% in advances under management, indicating steady loan growth. This growth in advances contributes to the bank's revenue and profitability.
3. Net Interest Margin (NIM): HDFC Bank's NIM remained stable at 3.46%, which is a positive sign for the bank's profitability. A stable NIM helps maintain the bank's earnings growth and return on equity.
4. Gross Non-Performing Assets (NPA): The bank has managed to keep its gross NPA percentage low at 1.4%, indicating effective risk management. A low NPA ratio ensures the bank's financial stability and maintains investor confidence.
5. Profit After Tax: HDFC Bank achieved a nine percent point increase in profit after tax from the previous year, reaching INR 16,800 crores. This growth in profit after tax reflects the bank's strong financial performance and growth prospects.



Financial Performance

HDFC Bank Limited's financial performance has been consistently strong, with revenue growth, earnings growth, and return on equity (ROE) all indicating a positive outlook. The bank's revenue growth rate is forecasted to decline at 3.7% per annum, which is lower than the industry average of 8.0%. However, the bank's earnings growth rate is expected to grow at 9.9% per year, which is higher than the industry average of 8.0%. HDFC Bank's return on equity is forecasted to be 14.8% in 3 years, which is higher than the industry average.



Valuation Metrics

HDFC Bank Limited's current valuation metrics are as follows:

1. Price-to-Earnings (P/E) Ratio: 19.80 (TTM)
2. Price-to-Sales (P/S) Ratio: 6.21
3. Price-to-Book (P/B) Ratio: 1.91
4. Enterprise Value-to-Revenue (EV/Revenue): 14.22

Comparing these metrics with historical averages and industry peers, we can observe that HDFC Bank's current P/E ratio of 19.80 is slightly higher than its historical average of 19.66 and higher than its peers. However, the bank's P/S ratio, P/B ratio, and EV/Revenue ratio are in line with its historical averages and higher than its peers, indicating a relatively overvalued stock compared to its historical averages and industry peers.



Conclusion

HDFC Bank Limited (HDB) has demonstrated strong growth drivers, consistent financial performance, and a relatively high valuation compared to its historical averages and industry peers. While the bank's deposit growth, advances under management, stable NIM, low NPA, and increased profit after tax indicate a positive outlook, the bank's relatively high P/E ratio suggests that the stock might be overvalued compared to its historical averages and industry peers. Investors should carefully consider the bank's growth prospects, earnings quality, and market conditions before making a final determination on whether HDB is the high-growth financial stock to invest in.