H ousing Development Finance Corp 1QFY12: Yet another consistent performance; Buy 􀂄 BofA Merrill Lynch,

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H ousing Development Finance Corp. Ltd.
1QFY12: Yet another
consistent performance; Buy
􀂄 1QFY11 Earnings: exactly in line; volume momentum strong
HDFC yet again delivered a consistent performance, with earnings growth coming
in at 22% yoy in 1Q12 (at Rs8.5bn), exactly in line. This is despite macro
headwinds and rising rates. The core top line grew by 17% yoy (in line), led by
volume growth of 22% yoy, with retail volume growth of 21% yoy. More
importantly, the rate of sanction and disbursement growth also remains strong, at
22% and 20%, respectively, yoy. Retail disbursement growth was also strong, at
21% yoy. Spreads are more or less stable, at 2.3% both yoy and qoq, as was the
margin yoy at ~4.0%.
Asset quality remains comfortable; Tier 1 strong
Asset quality remains comfortable, with gross at 83bps (up 6bps qoq, but
seasonal), with HDFC carrying excess provision of +Rs3.0bn in case NHB
enforces 40bps on standard assets. Tier 1 at 12.2%.
EPS growth to sustain at ~18%, but profit growth at +20%
We estimate earnings growth of ~18% for FY12/13, but net profits should grow by
+20% each for FY12/13, led by volume growth of ~20% and stable spreads.
Earnings growth will be lower, due to our factoring in a warrant conversion in
FY12. RoEs are likely to sustain at +21% in FY12/13 (+23% pre-warrant
conversion). Our FY12/13 estimates adjust to Rs24.52 and Rs28.63.
Maintain Buy and PO at Rs800; may trade on P/E vs P/B
We maintain our Buy rating and our PO of Rs800. We believe HDFC is a quality
“defensive growth” stock; valuations for the stock are more “PE” led than BV led.
The stock, trading at ~22-23x FY11 earnings (adj. for subs), can continue to trade
at similar multiples one-year out, given profit growth of +21/20% in FY12/13.