India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
HDFC (HDFC)
Banks/Financial Institutions
Performance in line; good growth, lower margins. HDFC reported 22% earnings
growth (in line with estimates). However, its NIMs (as per our estimates) declined (and
were below estimates) while loan growth improved to 22% yoy. We tweak estimates;
expect near-term performance to remain stable. At 4.3X PBR FY2013E, HDFC trades
close to full valuation, retain REDUCE rating with price target of Rs730.
Core earnings in line
HDFC’s core earnings (PBT before capital gains and extraordinary items) were up 23% to Rs9.5 bn
yoy and in line with estimates. Reported PAT was up 22% yoy to Rs8.4 bn. We expect near-term
earnings to remain strong; we are modeling core PBT growth of 17% and 23% in FY2012E and
FY2013E, respectively.
Loan growth accelerates…
HDFC reported 22% growth in approvals and 20% growth in disbursements. Non-retail
disbursements continue to be about 40% of overall disbursements. Overall loan growth was 22%,
21% pre-loan sell-down. Repayment rate declined to 35% from 38% at peak (in 2QFY11).
While real estate demand remains sluggish in select pockets, lower competitive intensity has likely
driven faster growth for HDFC. HDFC now offers new home loans at 10.25% while SBI offers
home loans at 10.5% (base rate + 1%); during the quarter SBI’s home loan rate was about 10%.
The management has highlighted that demand is sluggish in Mumbai and Delhi while other
geographies continue to do well. We believe that rising real estate prices and interest rates will put
near-term pressure on growth over the medium term, lower competitive intensity of SBI is a
positive development in this regard. As such, we continue to model 20% loan growth over the
next two years.
…while margin pressure was visible
Higher borrowings cost, post rise in bank base rates, has put pressure on margins despite hike in
HDFC’s home loan rates and developer loans. Reported spreads declined to 2.3% from 2.34% in
FY2011; annualized NIM declined to 3.2% from 3.5% in 1QFY11 and 4.4% in 4QFY11. A decline
in bulk borrowings rates (CP and CD rates) over the last five weeks is a sign of comfort; we expect
incremental margins to improve in the next two quarters. Reported margins will likely decline in
FY2012E.
Investment book earnings muted in 1QFY12
HDFC earned dividend income from HDFC Bank in 1QFY11. Capital gains were muted at
Rs163 mn as compared to Rs1.3 bn in 4QFY11.
HDFC has non-strategic equity investments of about Rs9 bn which includes listed and
unlisted investments. HDFC is awaiting approval for stake sale in Intelenet—this will
contribute Rs580 mn. We are modeling capital gains of Rs3.5 bn for FY2012E and Rs3.75 bn
for FY2013E in our estimates.
HDFC’s NPLs remain low at 0.9%. The company has excess provisions of Rs3.5 bn.
According to news reports, NHB will likely impose standard asset provisions of 40 bps on
home loans—this will have an impact of Rs1.5 bn (which can be adjusted with excess
provisions).
SOTP-based target price of Rs730; retain REDUCE
Our SOTP-based target price works out to Rs730/share (no change). In our fair value
estimate, we value HDFC’s mortgage business at Rs433/share—4X core PBR and 15X core
PER FY2013E for normalized RoEs of about 26-30% (2% core RoA and leverage of 13-15X).
Zero coupon bonds buoy reported spreads
HDFC has zero coupon bonds of Rs75 bn (7% of overall borrowings). According to the
management, the overall ZCBs quantum is maintained equal to equity investments in
subsidiaries and group companies.
In FY2011, the premium on redemption (Rs5 bn, 11% of PBT) on these bonds was adjusted
with the share premium account; in 1QFY12 the premium was Rs1.5 bn. Interest rates on
most of these bonds are about 7-8%. As the existing bonds mature, we expect the new ZCB
to carry a higher rate of interest. As such, we expect the premium on redemption of ZCB to
increase to Rs6.5 bn (12% of PBT) by FY2012E.
No comments:
Post a Comment