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HDFC (Housing Development
Finance Corporation) Overweight
HDFC.BO, HDFC IN
1Q12: Funding flexibility aids margins
Inline quarter: HDFC reported 1Q12 net profit of Rs8.45bn up 22%
y/y inline with our expectations. Spreads remained flat but NII was
higher than expectations due to stronger than expected loan growth
netting off lower than expected income from investment sale. Overall,
1Q12 was a robust qtr with stronger growth and stable spreads.
Growth remains robust: Adjusted loan book growth (sale of loans)
was robust at ~25% y/y driven by strong individual loan growth
(adjusted) at 26% y/y. In spite of rising rates, sanctions and
disbursements growth remained strong at 22% y/y and 20% y/y.
Volumes continue to remain robust across most geographies except
Mumbai and hence we see limited risk to our 20% loan growth
assumption for FY12.
Spreads resilient, 1Q12 highlights funding flexibility: Spreads
remained flat q/q at 2.3% in 1Q12. In spite of the increase in wholesale
rates, HDFC has been able to maintain spreads given the flexibility in
funding. Given increase in cost of bank borrowing due to base rate
increases by most banks over last 6months, HDFC has reduced reliance
on bank funding. Retail deposits contributed most of the incremental
funding in 1Q as share of deposits in total funding increased to 25%
from 21% in 4Q11. We expect increased reliance on deposits and bonds
in FY12 to aid spreads for HDFC in FY12.
Maintain Overweight: We adjust our earnings estimate by ~1% and
maintain our Mar-12 PT of Rs800. We expect margins to remain
resilient for HDFC compared to banks where we expect margin pressure
over the next 6-9 months. HDFC’s premium valuations are supported by
high returns combined with consistency and low risk, in our view. Key
risk to our Overweight recommendation are a slowdown in real estate
supply which could affect HDFC’s volumes.
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