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Healthy NII growth; spreads remain stable: HDFC reported PAT of Rs11.4bn, up
23.3% YoY and 28.2% QoQ, higher than our as well as street expectations on
account of Rs1.3bn profit from sale of investments (v/s Rs0.45bn in Q4FY10)
during the quarter. NII for the quarter at Rs13.0bn grew 15.5% YoY and 26.8%
QoQ on account of healthy 19.6% YoY and 7.4% QoQ loan growth coupled with
largely stable spreads on a QoQ basis. HDFC has increased its Retail Prime
Lending rate by ~125bps between period December 2010 and March 2011,
which helped the company to maintain its spreads. HDFC’s asset quality remains
the best in class as its gross non performing loans declined to 0.77% from 0.85%
in the previous quarter. Despite higher provisioning required towards the dual
rate home loans, the company still holds excess provisions to the tune of
~Rs3.1bn on its balance sheet.
�� Business growth remained healthy; loan mix shifts towards non‐retail
segment: Approvals and disbursals during the quarter grew by healthy 35% and
36% QoQ, respectively, although the YoY growth looks muted (due to high
base). Disbursals, during the quarter, in the non‐retail segment seem to be
higher as the mix of the outstanding loan book has slightly skewed towards the
corporate segment. Rising interest rates and property prices led to moderation
in the pace of growth of approvals and disbursals for full year FY11 to 24% and
20% respectively as against 29% and 25% YoY growth recorded during the nine
month period ended December 2010 respectively. Outstanding loan book grew
by 20% YoY, however, adjusting for Rs43.8bn worth loans sold during past 12‐
months the growth stood higher at 24% YoY
Valuations and Outlook: Steep increase in interest rates, with no signs of
cooling off in the near term could likely impact HDFC both on spreads as well as
volume front. We believe withdrawal of teaser loans from banks and increase in
the savings bank rate augurs well for HDFC as it should likely ease the overall
competitive pressure. We observe that in the past few quarters the share of
non‐core income for HDFC has risen as the company regularly books profits on
its investment book (which could be for building provision cushion or for
maintaining better capital adequacy). However, for our valuation purposes we
have reduced non core earnings and dividends from subsidiaries to arrive at a
fair value for its core business. At CMP, the stock trades at 22.8x and 19.4x its
FY12E and FY13E core EPS. We maintain our ‘Accumulate’ rating with a 15‐
month forward SOTP target price of Rs790.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Healthy NII growth; spreads remain stable: HDFC reported PAT of Rs11.4bn, up
23.3% YoY and 28.2% QoQ, higher than our as well as street expectations on
account of Rs1.3bn profit from sale of investments (v/s Rs0.45bn in Q4FY10)
during the quarter. NII for the quarter at Rs13.0bn grew 15.5% YoY and 26.8%
QoQ on account of healthy 19.6% YoY and 7.4% QoQ loan growth coupled with
largely stable spreads on a QoQ basis. HDFC has increased its Retail Prime
Lending rate by ~125bps between period December 2010 and March 2011,
which helped the company to maintain its spreads. HDFC’s asset quality remains
the best in class as its gross non performing loans declined to 0.77% from 0.85%
in the previous quarter. Despite higher provisioning required towards the dual
rate home loans, the company still holds excess provisions to the tune of
~Rs3.1bn on its balance sheet.
�� Business growth remained healthy; loan mix shifts towards non‐retail
segment: Approvals and disbursals during the quarter grew by healthy 35% and
36% QoQ, respectively, although the YoY growth looks muted (due to high
base). Disbursals, during the quarter, in the non‐retail segment seem to be
higher as the mix of the outstanding loan book has slightly skewed towards the
corporate segment. Rising interest rates and property prices led to moderation
in the pace of growth of approvals and disbursals for full year FY11 to 24% and
20% respectively as against 29% and 25% YoY growth recorded during the nine
month period ended December 2010 respectively. Outstanding loan book grew
by 20% YoY, however, adjusting for Rs43.8bn worth loans sold during past 12‐
months the growth stood higher at 24% YoY
Valuations and Outlook: Steep increase in interest rates, with no signs of
cooling off in the near term could likely impact HDFC both on spreads as well as
volume front. We believe withdrawal of teaser loans from banks and increase in
the savings bank rate augurs well for HDFC as it should likely ease the overall
competitive pressure. We observe that in the past few quarters the share of
non‐core income for HDFC has risen as the company regularly books profits on
its investment book (which could be for building provision cushion or for
maintaining better capital adequacy). However, for our valuation purposes we
have reduced non core earnings and dividends from subsidiaries to arrive at a
fair value for its core business. At CMP, the stock trades at 22.8x and 19.4x its
FY12E and FY13E core EPS. We maintain our ‘Accumulate’ rating with a 15‐
month forward SOTP target price of Rs790.
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