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HDFC
Best play on Indian housing finance …
�� Consistent under all circumstances
• The largest housing finance company in the country with a loan
portfolio of | 1,17,100 crore as on FY11
• Apart from the core mortgage business, HDFC has evolved into a
financial conglomerate, diversifying into other businesses through
its subsidiaries viz., HDFC Standard Life Insurance (73%), HDFC
Asset Management Company (60%), HDFC Bank (23.8%) and
HDFC ERGO General Insurance Company (74%)
• Corporate and retail loans mix is 37% and 63% of total o/s book
and loan portfolio for the company grew at the highest CAGR of
26% over the past decade
• The mortgage to GDP ratio is at around 8% - lowest among Asian
peers providing enough opportunity to grow
• Management control under Deepak Parekh’s leadership is an
added positive to stay invested in this consistent performing
company
�� Going ahead
• The loan book is estimated to grow at 18-20% CAGR on account
of housing demand in India and rising affordability of consumers.
It is expected to double its loan book every three to four years
• Total 95% of the mortgage business is sourced on its own or
through affiliates while only 5% is through DSAs, thereby helping
distribution and reducing costs, which will remain a strong
business model for the future also
• Profitability rose at 22% CAGR in the past 10 years while NIM
above 3.5% maintained for several years weathering various
interest rate cycles are key strengths
• Commercial real estate loans of | 433 billion generate higher
yields giving cushion to NIM protection around 3.5%
• Zero NNPA and GNPA of just 0.77% provide cushion to asset
quality as excess provision are held in the books to even take care
of enhanced provision requirements from NHB
Valuation
HDFC has always traded at rich multiples of over 3.5x one year forward
ABV because of its strong management and consistent return ratios with
RoA of 2% plus and 18-20% RoE. Going forward, subsidiaries like HDFC
Standard Life are expected to get listed leading to value unlocking for
investors. We remain bullish on the stock.
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