Lewis Kaufman, Managing Director at Artisan Partners Limited Partnership, says HDFC Bank Limited (ADR) (NYSE:HDB), one of the largest private banks in India, has a business model that is resilient during adverse periods.
HDFC Bank is a unique company. They have a very distinctive — and I would characterize it as wholesome and simplistic — approach to the banking business. They’re not looking necessarily to be the most aggressive to service the widest range of products. I think what they are really looking to do is stick to their core niche in retail banking.
ICICI Bank ran into a little bit of difficulty with the global financial crisis and had to re-tranche on its branch expansion during that period. HDFC Bank continued to invest in branches, and when the economy recovered in 2010 to 2011, it was able to grow at a very favorable rate.”
Kaufman says HDFC Bank has continued to invest in two areas in particular: its branch footprint and digital banking.
Those are two really important things to do when you are talking about a country of a billion people where those investments can bring the next couple of 100 million people into the banking sector for the first time.
So what we’ve seen is, as the economy has stabilized a little bit in India, those investments for HDFC Bank again have begun to bear fruit…in recent quarters [HDFC] has put up between 25% and 30% growth in its retail lending portfolio in a relatively high-quality way.
We like HDFC Bank because it’s the essence of what we would describe as a business value compounder. It’s a company that has the business-model resilience to continue to invest during adverse periods in the business cycle and emerge from those periods stronger than its competitors.
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