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Housing Development Finance Corporation
Sell Equity Research
Above expectations on stable margins; retain Sell on valuation
Higher NII growth on stable spreads
HDFC reported net profit of Rs11.4bn in 4QFY11, a 23% yoy growth, 10% ahead of
GSe and 13% from BB consensus. Adjusting for a one-off capital gain of
Rs1.34bn, PBT before capital gains is 9% ahead of GSe. Key highlights: (1)
NII was 13% ahead of GSe, growing 17% yoy driven by stable NIMs yoy (reported
spreads flat qoq at 2.33%). Our calculated yield on loans rose by c.100bp qoq
reflecting (1) reversal of income on loans recovered, (2) 50bp PLR hike during
the quarter, and (3) non-retail loans to 37% of total from 35.7% in 3Q. Average
cost of funds rose by 30bp qoq to 7.6%, reflecting elevated interest rates.
Incrementally HDFC is borrowing at 9.5%-10% vs. charging 9.75%-10.25% on
its loans. Excluding Rs1.4bn of interest costs on zero-coupon bonds routed
through reserves, calculated core spreads are c.50bp lower and NII growth for
FY11 at c.16% yoy vs. reported 25%. (2) Disbursements grew 4% yoy (16.5%
below GSe), indicated as a base effect by management. Retail disbursements
seem to have slowed in 4Q up 38% in 9mFY11 vs. 27% for the full year. Loans
grew c.20% yoy post the loan sell-down (of Rs43.8bn in last 12 months, the
bulk of which is to HDFC Bank).
We remain Sell rated as we believe valuations reflect positives
HDFC is currently trading at stand-alone 4.1xFY12E P/BV and 17.7xFY12E P/E
with premium multiples given sustainable high RoEs and growth potential.
However, given the lack of near-term catalysts, we reiterate our Sell rating. We
fine-tune our FY12E/13E/14E EPS by +1%/-0.8%/-0.1% primarily adjusting for
lower disbursements. Our 12-m CAMELOT and SOTP-based price target is
unchanged at Rs640. Key upside risk:a defensive play for investors, unlocking
value in subsidiaries, higher growth/spread
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Housing Development Finance Corporation
Sell Equity Research
Above expectations on stable margins; retain Sell on valuation
Higher NII growth on stable spreads
HDFC reported net profit of Rs11.4bn in 4QFY11, a 23% yoy growth, 10% ahead of
GSe and 13% from BB consensus. Adjusting for a one-off capital gain of
Rs1.34bn, PBT before capital gains is 9% ahead of GSe. Key highlights: (1)
NII was 13% ahead of GSe, growing 17% yoy driven by stable NIMs yoy (reported
spreads flat qoq at 2.33%). Our calculated yield on loans rose by c.100bp qoq
reflecting (1) reversal of income on loans recovered, (2) 50bp PLR hike during
the quarter, and (3) non-retail loans to 37% of total from 35.7% in 3Q. Average
cost of funds rose by 30bp qoq to 7.6%, reflecting elevated interest rates.
Incrementally HDFC is borrowing at 9.5%-10% vs. charging 9.75%-10.25% on
its loans. Excluding Rs1.4bn of interest costs on zero-coupon bonds routed
through reserves, calculated core spreads are c.50bp lower and NII growth for
FY11 at c.16% yoy vs. reported 25%. (2) Disbursements grew 4% yoy (16.5%
below GSe), indicated as a base effect by management. Retail disbursements
seem to have slowed in 4Q up 38% in 9mFY11 vs. 27% for the full year. Loans
grew c.20% yoy post the loan sell-down (of Rs43.8bn in last 12 months, the
bulk of which is to HDFC Bank).
We remain Sell rated as we believe valuations reflect positives
HDFC is currently trading at stand-alone 4.1xFY12E P/BV and 17.7xFY12E P/E
with premium multiples given sustainable high RoEs and growth potential.
However, given the lack of near-term catalysts, we reiterate our Sell rating. We
fine-tune our FY12E/13E/14E EPS by +1%/-0.8%/-0.1% primarily adjusting for
lower disbursements. Our 12-m CAMELOT and SOTP-based price target is
unchanged at Rs640. Key upside risk:a defensive play for investors, unlocking
value in subsidiaries, higher growth/spread
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