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UBS Investment Research
HDFC
A nother stable quarter
�� Event: Q1 results in line with estimates; healthy loan growth
HDFC reported Q1FY12 net profit of Rs8.5bn +22y/y which was broadly in line
with our and consensus estimates. NII (adjusted for cash surplus) grew 17% y/y
with core operating income growth of 21%y/y. Key highlights were: 1) loan
growth of 25% y/y, 9%q/q (adjusted for sell down) with healthy growth from
individual segment, 2) approval growth of 22%y/y with disbursement growth of
20%, 3) Gross NPA inched up by 6bp q/q to83bp, 4) Stable reported spreads at
230bp; NIMs (calc) soften a bit and 5) Tier I at 12.2%.
�� Impact: Maintain estimates
While sequentially NIM (calc) has contracted on account of seasonal effect, it has
been stable y/y. We expect NIM to improve during the rest of the year, with the
bulk of cost pressures reflected in the Q1 spreads. We build in stable spreads in
FY12 vs FY11. With competitive intensity easing we expect HDFC to maintain its
20% loan growth trend. Dividend and fee income will largely track business
growth of 20%, in our view; however, investment gains could be lower in FY12.
�� Action: Business trends stable but valuation rich
We maintain our estimates and our Neutral rating on rich valuation; standalone
business currently trades at 4.8x FY12E book and 18.9x FY12E earnings.
�� Valuation: Maintain Neutral
We derive our price target through our sum-of-the-parts methodology. At our price
target, standalone business trades at 5.5x FY12E book and 21x FY12E earnings.
We value the investment in subsidiaries at Rs 260per share.
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