Mumbai: Shares of private lender HDFC Bank tanked nearly 8 per cent in morning trade on Friday after brokerage Sanford C. Bernstein downgraded the stock to ‘underperform’ from ‘market perform’ and slashed the price target by nearly half to Rs 750 from Rs 1,400 earlier.

At 10:14 am, the stock was down 3.92 per cent at Rs 859.75 , and was the biggest contributor of losses in the benchmark Sensex. Earlier in the day, the stock tumbled as much as 7.85 per cent to Rs 824.55.

“HDFC Bank, being a quality franchise, has weathered crises well in the past and has often been seen as a safe haven. However, in the current pandemic-driven environment. we believe HDFC Bank carries certain idiosyncratic risks and unique management challenges,” analyst Gautam Chhugani said in a note on Thursday.

The brokerage believes India may be facing significant challenges in handling the health crisis, and this may be a catalyst for consumer-lending businesses in the country, causing far-reaching disruption in sustaining growth operationally and in maintaining quality of credit.

Being the consumer finance market leader, HDFC Bank has great sensitivity to its bottom line with 24 per cent of earnings and 36 per cent of its earnings growth contributed by unsecured consumer finance, the brokerage said.

HDFC Bank has the highest exposure to unsecured retail credit at 17 per cent of its loan book versus ICICI Bank and Axis Bank, that have it at 9 per cent of their loan mix.

“HDFC Bank’s impending CEO succession and lack of proactive planning, sets up the bank to lose its sheen with investors who would have preferred less uncertainty. An unsatisfactory outcome of the succession process increases risk of a multiple derating,” Chhugani said.

Over the next 2 years, he expects the earnings growth to slow down to a sub-15 per cent growth versus its clockwork growth of 20 per cent and investor community may not offer the same multiple to the bank, post management succession.

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