Macquarie Research, HDFC 1Q12: A stable quarter

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HDFC
1Q12: A stable quarter
Event
􀂃 Nos below our estimates due to: HDFC reported 22% YoY growth in net
profits – 4% below our number and consensus no of Rs8.78bn (Bloomberg).
The lower profits were mainly on account of NII which came in 7% below our
estimates at Rs10bn. Maintain Outperform with TP of Rs775.
Impact
􀂃 Growth is stable at 20% as guided; rising rates have not been a
deterrent for growth: HDFC’s sanctions and disbursements for the quarter
were up 22% YoY and 20% respectively. Loan growth (adjusted for sell down)
has been 21% YoY. Company has been in a position to maintain growth at
20% levels despite rising rates.
􀂃 Spreads maintained despite tight liquidity conditions: HDFC continues to
maintain loan spreads at 2.3% levels. The company has also increased its
investments in liquid funds from virtually nil in 4Q to Rs58bn this quarter.
Share of deposits has gone up to 25% in overall funding compared to 21% in
4QFY11. Nearly 70% of the incremental funding this quarter has come
from retail deposit base. The corporation has taken lower recourse to bank
borrowings as banks’ base rates were quoting at 9.5 to 10% and deposits
were coming in at lower rates.
􀂃 Sequential increase in NPLs is just a seasonal phenomenon: The
sequential increase in NPLs is just a seasonal phenomenon where by 1Q
NPLs are higher than 4Q due to lower recoveries. The Gross NPLs as a result
are up from 0.77% 4QFY11 to 0.83% in 1QFY12.
􀂃 Key takeaways from conversation with the management: 1) The
sequential fall in NII is due to a) the NPL increase that happens as they stop
accruing interest income and hence NII looks weak usually in 1Q and as and
when recoveries happen, interest reversals also happen b) this quarter the
higher base rates of banks plus c) higher deposit mobilisation where the
origination expense gets booked under interest expenses depressed the NII
further 2) The debit to reserves this quarter because of ZCBs is Rs1.5bn 3)
Individual sanctions and disbursements have also growth at 20% levels 4)
Income from securitisation is amortised over the life of the loan and also
amortised quarterly. The quarterly run rate has been Rs450mn resulting in
annual securitisation income of Rs1.8bn.
Earnings and target price revision
􀂃 Marginal changes to EPS done. TP is kept unchanged.
Price catalyst
􀂃 12-month price target: Rs775.00 based on a Sum of Parts methodology.
􀂃 Catalyst: Positive earnings surprises, strong growth and stable spreads
Action and recommendation
􀂃 Long-term positive, triggers limited in the near term: At 4.5x FY13E P/BV
we see limited upside from current levels in the near term. We would
recommend long-term investors to hold onto the stock. Reiterate Outperform
with TP of Rs775.