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HDFC (Housing Development Finance Corporation)
Overweight ; HDFC.BO, HDFC IN
In-line 3Q
• In-line 3Q11: HDFC’s reported 3Q11 net profit of Rs8.9bn, up 33% and
in line with our estimates and marginally higher than consensus
estimates. The high y/y profit growth was due to a Rs1.7bn exceptional
capital gain. Overall loan growth was strong at 27% y/y growth
(including sale of loans) and NII was in line with estimates.
• Strong loan growth momentum: 27% y/y loan growth was driven
primarily by a 31% y/y increase in individual loan book. 3Q11 approvals
and disbursements growth at 25%/21% y/y continues to be strong. Also,
individual approvals growth remains robust at ~30% y/y and would be
the primary driver for overall loan growth.
• Teaser loan provisions adjusted to contingent provisions: ~Rs4.0bn
of additional provisions on teaser loans was adjusted to contingent
provisions. HDFC carried Rs3.8bn of excess contingent provision in
2Q11 and they have transferred Rs2.7bn from reserves to contingent
provisions, leading to a 1.5% impact on net worth. With the transfer,
HDFC continues to carry ~Rs3.0bn of excess contingent provisions.
• HDFC continues to improve on cost to income (9.4% adjusted for oneoff treasury gains). Asset quality remains robust with Gross NPAs
improving further to 0.85% and down 9bps y/y.
• Maintain Overweight: We remain positive on HDFC as we believe the
impact on margins from a rising rate environment would be limited.
Though margins should moderate marginally, funding flexibility and
slow phase off of teaser loans (due to higher general provisioning)
would restrict margin pressure. Our Sep-11 PT of Rs800 remains
unchanged. A key risk to our Overweight recommendation is lower real
estate volumes due to rising interest rate.
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