HDFC - 1QFY2012 Result Update - Angel Broking

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HDFC - 1QFY2012  Result Update

Angel Broking maintains Neutral on HDFC .

For 1QFY2012, HDFC’s standalone net profit grew by healthy 21.6% yoy (down

26.0% qoq). Although the spreads for 1QFY2012 witnessed a marginal decline,

the asset quality continued to be stable. We recommend Neutral on the stock.

Strong sequential loan growth, asset quality remains stable: For 1QFY2012,

HDFC’s loan book grew strongly by 22.2% yoy and 6.0% qoq to `124,168cr.

Approvals grew by 22.0% yoy to `19,500cr, while disbursements grew by 20.0%

yoy to `13,000cr. On a qoq basis, approvals declined by 12.1%, while

disbursements witnessed a decline of 29.6% mainly because of seasonality and a

high base. The bank’s NII increased modestly by 11.3% yoy, as rising interest

rates increased the cost of funds for the company. The spread on loans over the

cost of borrowings stood at 2.30% for 1QFY2012 compared to 2.34% for

1QFY2011. The asset quality continued to be stable during 1QFY2012, with

gross NPA ratio rising by 6bp sequentially to 0.83%. On a six-month overdue

basis, the gross NPA ratio stood at 0.55%.

Outlook and valuation: At the CMP, HDFC’s core business (after adjusting

`225/share towards value of the subsidiaries) is trading at 4.53x FY2013E ABV of

`107.5 (including subsidiaries, the stock is trading at 4.46x FY2013E ABV of

`159.7). We expect HDFC to post a healthy PAT CAGR of 17.8% over

FY2011–13E. However, considering that the stock is currently trading at 5.2x

one-year forward P/ABV (compared to its median of 4.6x over the last five years)

and at a 61.4% earnings premium to the Sensex (compared to an average of

43.1% over the last five years), we consider the stock to be richly valued at its

CMP and, hence, recommend Neutral on the stock.

Loan growth healthy; outlook remains strong

For 1QFY2012, HDFC’s loan book grew strongly by 22.2% yoy and 6.0% qoq to

`124,168cr. Approvals grew by 22.0% yoy to `19,500cr, while disbursements

grew by 20.0% yoy to `13,000cr. On a qoq basis, approvals declined by 12.1%,

while disbursements witnessed a decline of 29.6% mainly because of seasonality

and a high base. We expect approvals and disbursements to scale up in

the coming quarters and have factored in loan growth of 20% for both FY2012

and FY2013.

Outlook and valuation

At the CMP, HDFC’s core business (after adjusting `225/share towards value of

the subsidiaries) is trading at 4.53x FY2013E ABV of `107.5 (including

subsidiaries, the stock is trading at 4.46x FY2013E ABV of `159.7). We expect

HDFC to post a healthy PAT CAGR of 17.8% over FY2011–13E. However,

considering that the stock is currently trading at 5.2x one-year forward P/ABV

(compared to its median of 4.6x over the last five years) and at a 61.4% earnings

premium to the Sensex (compared to an average of 43.1% over the last five years),

we consider the stock to be richly valued at its CMP and, hence, recommend

Neutral on the stock.