India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
HDFC LTD
PRICE: RS.717
RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.720
FY12E P/E: 25.3X;
P/ABV: 5.3X
q Mortgage loan growth to remain healthy; increased lending rate will aid
retaining net interest margin
q Change in the mortgage loan provisioning norms (new NHB guidelines)
will have very marginal impact on the earnings; overall asset quality remains healthy.
q We maintain our positive outlook for HDFC and recommend investors to
ACCUMULATE the stock on declines with a price target of Rs. 720.
Mortgage loan growth to remain healthy; increased lending rate
will aid retaining net interest margin
HDFC has discontinued the dual interest rate product (8.75%-9%), and is currently
offering mortgage loans at 9% rate of interest. Lending rates to existing customers
has also been revising by 75bps. Following the tighter liquidity conditions, the borrowing cost - both short as well as long term, has gone up sharply during Q3FY11.
The increase in lending rate will aid HDFC in retaining the net interest margin. The
company has guided for net spreads of 2.2% going forward.
With lower mortgage penetration in India and steady demand for housing, leading
mortgage financiers like HDFC will remain in sweet spot. We expect a steady 25%
yoy growth in disbursements over FY11-12, and a 22% CAGR in mortgage loans to
Rs.1,193bn and Rs.1,459bn during FY11 and FY12 respectively.
Change in the mortgage loan provisioning norms will have very
marginal impact on the earnings; overall asset quality remains
healthy.
NHB has mandated that housing finance companies should create provision for
0.4% of the total loans outstanding by September 2011. HDFC is carrying an excess
provision of about Rs. 4bn in its books as on Q3FY11, which will be utilized toward
the additional provisioning requirement. Further, the maximum loan to value of ratio
for loans up to Rs. 2mn is 90% and loans above Rs.2mn is 80%, HDFC's average
loan to value ratio stood at 68% and therefore is less likely to have any significant
impact on its business.
Additional requirement of a 2% provision on dual rate loans will be met from the
excess provision in the books. For HDFC, the dual rate loans outstanding in the
books amounts to Rs. 200bn, nevertheless, the excess provision of Rs 4bn will be
sufficient to take care of additional provision requirement. Importantly HDFC has
discontinued the scheme from December 2010 onwards and there are no new additions to the portfolio. Therefore, the new NHB norms are less likely to have any significant impact on HDFC's earnings going forward.
HDFC's asset quality remains healthy, during Q2FY11; HDFC reported a gross NPA
of Rs.9.4bn (0.9% of assets) and net NPA of 2.1bn. Provision coverage for Q2FY11
stood firm at 77%
We maintain our positive outlook for HDFC and recommend investors to accumulate the stock on declines with a price target of
Rs. 720.
Given the steady demand for housing in Indian, we maintain our positive outlook for
HDFC. We maintain our earnings estimates; we expect a net profit growth of 20%
yoy to Rs.34bn for FY11 and 19.8% yoy growth and net profit of Rs.40.7 bn for
FY12.
We value HDFC using sum-of-the-parts (SOTP) methodology. The core business
(mortgage financing) is valued on dividend discount model (DDM), based on which
we arrive at a fair value of Rs.486 (FY12 estimates), which is 3.6x its FY12 adjusted
book value of Rs.134. We have valued HDFC subsidiaries-at Rs.235, leading to a
price target of Rs.720. The stock is trading at 3.6x P/ABVx- post striping the value of
subsidiaries and investments. We maintain our ACCUMULATE recommendation with
a price target of Rs.720.
No comments:
Post a Comment