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Housing Development Finance Corp. Ltd.
4Q: Loan growth strong,
margins hold-up; Buy
„4QFY11 Earnings: 3% ahead; loan growth remains ~20%
HDFC’s 4QFY11 earnings at Rs11.4bn, up +23%, were 3% ahead of estimates
driven by ~20% loan growth (AUM) for retail and overall loan growth at ~19%.
Spreads also increased marginally (up 2bps yoy) to 2.33% (flat qoq). Momentum
in the underlying business continues to be strong with disbursements growth at
20% yoy in FY11. More importantly, retail disbursement growth also strong at
~25% yoy in 4Q (27% yoy in FY11). Core topline grew 16% yoy (2% ahead).
Asset quality comfortable with gross at 77bps (down 8bps qoq). Tier 1 at +12%.
Earnings growth to sustain at +20% on +19-20% loan growth
We have tweaked our net profit est. by ~3% for FY12/13 factoring in strong 4Q
(and FY11). We believe growth (retail vol.) is likely to sustain at +19-20%; this
coupled with stable spreads should allay any fears of earnings growth moderation.
Hence, estimate HDFC’s net profit growth at +21/20% over FY12/13. More
importantly, we believe the RoE is also likely to sustain at +23-24% through FY12-
13 after factoring in warrant conversion.
Maintain Buy and PO at Rs800
We maintain Buy and our PO at Rs800. We believe HDFC being a quality
“defensive growth” stock, valuations for the stock to be more “PE” led than BV led.
Hence, the stock trading at +21-22x FY11 earnings (adj. for subs) can continue to
trade at similar multiples one-year out given profit growth of +21/20% over
FY12/13. Moreover, although we maintain our subs value at Rs166/shr, we think
there may be some cushion to our SOTP, especially from life ins., which is
growing at a faster pace (22% APE new biz. vs. private sector contraction by 17%
in FY11) and is likely to break-even in FY12.
4QFY11 result takeaways
HDFC’s 4QFY11 earnings at Rs11.4bn, up +23%, were 3% ahead of estimates
driven by ~20% loan growth (retail AUM) and spreads up 2bps yoy to 2.33% (flat
qoq).
Momentum in the underlying business continues to be strong with disbursements
growth of also 20% yoy in FY11. But growth was modest in 4Q (yoy) at only 9%
yoy owing to unusual high activity in 4QFY10 on expiring of teaser loan
promotion. More importantly, retail disbursement growth also strong at 25% yoy in
4Q (27% yoy in FY11). For FY11, individual approvals grew at 25% and
disbursements grew by 27%.
Core topline grew 16% yoy (2% ahead). Fees up 8% yoy, but partly due to
stopping of corporate loan fees upfront. Further, the results also factor in one-off
income of +Rs1.3bn on account of profit booking in Lafarge. Opex continues to
be under check with cost-income ratio at 6.1%. In absolute terms, opex has
increased by +70% yoy, on base effect (last year service tax reversal in 4QFY10).
Asset quality comfortable with gross at 0.8% (down 8bps qoq). Tier 1 at +12%
Earnings growth to sustain at +20%
We have tweaked our net profit est. by ~3% for FY12/13 factoring in strong 4Q
(and FY11). We believe earnings growth is likely to sustain at +20% through
FY12/13 driven by:
a) Loan growth of +19-20%, as structural growth drivers remain strong;
b) Spreads should remain manageable in +2.2-2.3% range, as HDFC has the
ability to hike lending rates to counter funding cost rise (we are still ~100bps away
before demand starts to hurt) and re-price its corporate book as HDFC has re-set
clauses built in allowing it to re-price the loans.
c) On the asset quality front, HDFC still has a LTV of 50% and on an incremental
basis too, it is around 65%. Further, in the case of developer loans (10-11% of
loans); the LTV is even lower in most cases. Moreover, as per HDFC, all
developer loans are performing at this juncture.
Hence, estimate HDFC’s net profit growth at +21/20% over FY12/13. More
importantly, we believe the RoE is also likely to sustain at +22-23% through
FY12-13 after factoring in warrant conversion.
Maintain subs. value at Rs166/shr.
We maintain our subs value at Rs166, which includes life insurance value at
Rs41/shr., HDFC Bk at Rs182/shr. and the balance is AMC biz. at Rs24/shr., pre
10% hold’co discount. Moreover, although we maintain our subs value at
Rs166/shr, we think there may be some cushion to our SOTP, especially from life
ins., which is growing at a faster pace (22% APE new biz. vs. private sector
contraction by 17% in FY11) and is likely to break-even in FY12.
Maintain PO at Rs800; may trade on PE vs. PB
We maintain Buy and our PO at Rs800. We believe HDFC being a quality
“defensive growth” stock, valuations for the stock to be more “PE” led than BV
led. Hence, the stock trading at +21-22x FY11 earnings (adj. for subs) can
continue to trade at similar multiples one-year out given earnings growth of
+22/21% over FY11/12 and RoEs of +22-24% through FY13. Also, although we
maintain our subs value at Rs166/shr, we think there may be some cushion to our
SOTP, especially from life ins., which is growing at a faster pace vs. our
conservative est. on growth and margins.
Price objective basis & risk
HDFC (HGDFF)
We set our PO at Rs800 to factor in 1) overall growth momentum sustaining,
especially retail and 2) we believe HDFC is likely to deliver RoEs of 22-24% on
profit growth of 21/20% in FY12/13. Our PO is based on a premium to the Gordon
model theory. Further, we think may be upside to our SOTP (Rs166/shr),
especially from HDFC Bk (distribution) and life insurance (growth YTD stronger
than estimated for FY11). A sharp rise in NPLs and an inability to maintain growth
are risks to our price objective
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Housing Development Finance Corp. Ltd.
4Q: Loan growth strong,
margins hold-up; Buy
„4QFY11 Earnings: 3% ahead; loan growth remains ~20%
HDFC’s 4QFY11 earnings at Rs11.4bn, up +23%, were 3% ahead of estimates
driven by ~20% loan growth (AUM) for retail and overall loan growth at ~19%.
Spreads also increased marginally (up 2bps yoy) to 2.33% (flat qoq). Momentum
in the underlying business continues to be strong with disbursements growth at
20% yoy in FY11. More importantly, retail disbursement growth also strong at
~25% yoy in 4Q (27% yoy in FY11). Core topline grew 16% yoy (2% ahead).
Asset quality comfortable with gross at 77bps (down 8bps qoq). Tier 1 at +12%.
Earnings growth to sustain at +20% on +19-20% loan growth
We have tweaked our net profit est. by ~3% for FY12/13 factoring in strong 4Q
(and FY11). We believe growth (retail vol.) is likely to sustain at +19-20%; this
coupled with stable spreads should allay any fears of earnings growth moderation.
Hence, estimate HDFC’s net profit growth at +21/20% over FY12/13. More
importantly, we believe the RoE is also likely to sustain at +23-24% through FY12-
13 after factoring in warrant conversion.
Maintain Buy and PO at Rs800
We maintain Buy and our PO at Rs800. We believe HDFC being a quality
“defensive growth” stock, valuations for the stock to be more “PE” led than BV led.
Hence, the stock trading at +21-22x FY11 earnings (adj. for subs) can continue to
trade at similar multiples one-year out given profit growth of +21/20% over
FY12/13. Moreover, although we maintain our subs value at Rs166/shr, we think
there may be some cushion to our SOTP, especially from life ins., which is
growing at a faster pace (22% APE new biz. vs. private sector contraction by 17%
in FY11) and is likely to break-even in FY12.
4QFY11 result takeaways
HDFC’s 4QFY11 earnings at Rs11.4bn, up +23%, were 3% ahead of estimates
driven by ~20% loan growth (retail AUM) and spreads up 2bps yoy to 2.33% (flat
qoq).
Momentum in the underlying business continues to be strong with disbursements
growth of also 20% yoy in FY11. But growth was modest in 4Q (yoy) at only 9%
yoy owing to unusual high activity in 4QFY10 on expiring of teaser loan
promotion. More importantly, retail disbursement growth also strong at 25% yoy in
4Q (27% yoy in FY11). For FY11, individual approvals grew at 25% and
disbursements grew by 27%.
Core topline grew 16% yoy (2% ahead). Fees up 8% yoy, but partly due to
stopping of corporate loan fees upfront. Further, the results also factor in one-off
income of +Rs1.3bn on account of profit booking in Lafarge. Opex continues to
be under check with cost-income ratio at 6.1%. In absolute terms, opex has
increased by +70% yoy, on base effect (last year service tax reversal in 4QFY10).
Asset quality comfortable with gross at 0.8% (down 8bps qoq). Tier 1 at +12%
Earnings growth to sustain at +20%
We have tweaked our net profit est. by ~3% for FY12/13 factoring in strong 4Q
(and FY11). We believe earnings growth is likely to sustain at +20% through
FY12/13 driven by:
a) Loan growth of +19-20%, as structural growth drivers remain strong;
b) Spreads should remain manageable in +2.2-2.3% range, as HDFC has the
ability to hike lending rates to counter funding cost rise (we are still ~100bps away
before demand starts to hurt) and re-price its corporate book as HDFC has re-set
clauses built in allowing it to re-price the loans.
c) On the asset quality front, HDFC still has a LTV of 50% and on an incremental
basis too, it is around 65%. Further, in the case of developer loans (10-11% of
loans); the LTV is even lower in most cases. Moreover, as per HDFC, all
developer loans are performing at this juncture.
Hence, estimate HDFC’s net profit growth at +21/20% over FY12/13. More
importantly, we believe the RoE is also likely to sustain at +22-23% through
FY12-13 after factoring in warrant conversion.
Maintain subs. value at Rs166/shr.
We maintain our subs value at Rs166, which includes life insurance value at
Rs41/shr., HDFC Bk at Rs182/shr. and the balance is AMC biz. at Rs24/shr., pre
10% hold’co discount. Moreover, although we maintain our subs value at
Rs166/shr, we think there may be some cushion to our SOTP, especially from life
ins., which is growing at a faster pace (22% APE new biz. vs. private sector
contraction by 17% in FY11) and is likely to break-even in FY12.
Maintain PO at Rs800; may trade on PE vs. PB
We maintain Buy and our PO at Rs800. We believe HDFC being a quality
“defensive growth” stock, valuations for the stock to be more “PE” led than BV
led. Hence, the stock trading at +21-22x FY11 earnings (adj. for subs) can
continue to trade at similar multiples one-year out given earnings growth of
+22/21% over FY11/12 and RoEs of +22-24% through FY13. Also, although we
maintain our subs value at Rs166/shr, we think there may be some cushion to our
SOTP, especially from life ins., which is growing at a faster pace vs. our
conservative est. on growth and margins.
Price objective basis & risk
HDFC (HGDFF)
We set our PO at Rs800 to factor in 1) overall growth momentum sustaining,
especially retail and 2) we believe HDFC is likely to deliver RoEs of 22-24% on
profit growth of 21/20% in FY12/13. Our PO is based on a premium to the Gordon
model theory. Further, we think may be upside to our SOTP (Rs166/shr),
especially from HDFC Bk (distribution) and life insurance (growth YTD stronger
than estimated for FY11). A sharp rise in NPLs and an inability to maintain growth
are risks to our price objective
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