India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
HDFC: Walking a tightrope
HDFC reported 33% YoY growth in net profit, partly boosted by Rs1.7bn
of treasury gains. More importantly, loan book grew by 21% in spite of
slowdown in home sales and spreads were stable at +2.3%. However, we
expect loan growth to moderate as HDFC has withdrawn the dual rate
product and spreads could compress by 5-10bps as the full impact of
inverted yield curve is felt. HDFC has outperformed most banks despite
being a wholesale funded institution and we retain BUY recommendation
with a price target of Rs800; any correction is a good entry opportunity.
Maintaining growth and profitability in tough times
HDFC’s loan growth continues to improve and during 3QFY11 loan book grew
by 21%, highest in past eight quarters, in spite of some slowdown in housing
sales. While approval growth of 29% indicates strong pipeline, we expect loan
to moderate with the withdrawal of dual rate product and hike in lending rates
(implying rate hike of 150-200bps on new loans). Spreads were stable, but
margins expanded due to zero coupon bonds (notional interest of Rs1.4bn,
13% of NII) and spreads on securitised loans.
Shift in loan-mix will help to protect spread contraction
We expect HDFC’s cost of funds to rise further in 4QFY11 as it sees the full
impact of sharp rise in cost of wholesale funds and an inverted yield curve.
Aggressive pricing by SBI will restrict pricing power on mortgage segment,
but pricing power in corporate loans has improved significantly on the back of
risk aversion from PSU banks. We expect corporate loan book to grow faster
than retail in 4Q which will help to restrict spread compression to 5-10bps.
One-off items in 3QFY11 results
HDFC’s profit in 3Q was boosted by treasury gains of Rs1.7bn (14% of PBT),
primarily from sale of stake in ILFS. Asset quality was relatively stable with
gross NPL at 85bps and coverage ratio of 118% of gross NPLs. Coverage ratio
has increased as HDFC made additional provisions on dual rate loans and
non-housing loans (per new norms by regulator) by using floating provisions
held in shareholders’ reserves ( Rs2/ share).
Maintain BUY
We expect HDFC to report 19% Cagr in loans over FY10-13 and this will drive
21% Cagr in earnings. In spite of being a wholesale funded institution, HDFC
has outperformed banks over the past three months and we maintain HDFC
among our top-picks in the sector. Maintain BUY with target price of Rs800.
No comments:
Post a Comment