Jefferies has lowered its earnings estimates for HDFC Bank for FY27-29 by 3% each following the decision of CEO Sashidhar Jagdishan not to seek re-appointment. The brokerage, however, maintains a 'Buy' rating on the stock, citing that the bank's valuations are not overly demanding despite the leadership uncertainty.
The bank's board is accelerating the process of identifying a successor for Jagdishan, with internal candidate Kaizad Bharucha, the Deputy Managing Director, being a potential choice. Bharucha, who has been with HDFC Bank since 2014, could lead the bank for a tenure of 2.8-3 years, facilitating a smoother transition. External candidates like Anup Bagchi and Paresh Sukthankar are also being considered.
Jefferies noted that while investors are comfortable with a leadership change, they caution against appointing former leaders from PSU banks, as it could complicate the transition. The brokerage has based its revised target on 1.6x September 2028 adjusted price-to-book value, reflecting the potential increase in the cost of equity due to the uncertainty.
“We will watch out if this leads to an exit among senior leaders of the bank. This can impact business and performance in the near term.”
Analysts at the firm
Despite the leadership change, Jefferies does not foresee a risk to HDFC Bank's asset quality, highlighting that the bank's exposure to the Essel group was nil at the time of the merger. The stock has been under pressure, falling 27.33% year-to-date and 24.80% over the past year.
The bank's board had attempted to persuade Jagdishan to continue, but he remained firm on his decision. The leadership transition comes as HDFC Bank's stock performance has been lackluster, with a nearly 6.97% decline over five years.
Background
HDFC Bank, India's largest private lender, is undergoing a significant leadership transition as CEO Sashidhar Jagdishan steps down. The bank has been a key player in the Indian banking sector, known for its high asset quality and robust performance. The leadership change comes at a time when the bank's stock has been underperforming, prompting concerns about its future direction.
As HDFC Bank navigates this leadership transition, the focus will be on maintaining its asset quality and stabilizing its stock performance. Investors and analysts will be closely watching the board's decision on the new CEO and the subsequent impact on the bank's strategic direction.
