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India Equity Research Reports, IPO and Stock News
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Key Takeaways
Outlook for mortgage financing remains positive
HDFC remains optimistic about longterm demand for housing finance as India's
mortgage to GDP ratio is 9% v/s 80%+ in developed countries like UK and USA.
Key growth drivers are: (1) increasing affordability due to rising disposable income
- average house value has fallen from 22x annual income in 1995 to 4.8x in 2011,
(2) rising urbanization - to increase from ~31% in 2011 to 40% by 2030, and (3)
favorable demographics - average age of home buyers is 35 years, and currently,
~60% of India's population is below the age of 30.
Growth momentum remains healthy
Higher disbursements seen in tier-II and tier-III cities, as affordability in metros
such as Mumbai and Delhi has reduced. Prices in these cities are stabilizing, but are
unlikely to reduce considerably.
In 1QFY12, sanctions and disbursements grew at a healthy pace of 22% YoY and
20% YoY, respectively. Overall AUM grew by 21% YoY.
Business growth in the current quarter so far has been in line with 1QFY12, which
should translate into ~20% YoY asset growth in 2QFY12.
For FY12, the management expects to grow its loan book by 18-20%.
Spreads likely to remain stable
The company was able to sustain its spread at ~2.3% in 1QFY12. The management
expects spreads to remain within the historical band of 2.15-2.35%.
HDFC has hiked its lending rates by ~100bp in the current quarter and still has
headroom for another 50bp increase.
Other highlights
HDFC has tied up with IndusInd Bank for sourcing loans.
During the year to date period, HDFC has sold loans worth INR12.5b to HDFC Bank.
For the full year, this could be INR50b-60b.
Keen on listing the life insurance arm, but not anytime before March 2012.
Asset quality is likely to remain stable. Portfolio mix would remain steady, with
developer exposure at 10-14%.
Valuation and view
We expect HDFC to record an EPS of INR28 in FY12 and INR33 in FY13, translating
into EPS CAGR of 16% over FY11-13. Core RoE would be over 26% and RoA would
remain steady at ~2.8%. The stock trades at 4.2x FY12E and 3.6x FY13E adjusted
BV (price adjusted for value of key ventures and book value adjusted for investment
in those ventures). Valuations remain rich. Maintain Neutral.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key Takeaways
Outlook for mortgage financing remains positive
HDFC remains optimistic about longterm demand for housing finance as India's
mortgage to GDP ratio is 9% v/s 80%+ in developed countries like UK and USA.
Key growth drivers are: (1) increasing affordability due to rising disposable income
- average house value has fallen from 22x annual income in 1995 to 4.8x in 2011,
(2) rising urbanization - to increase from ~31% in 2011 to 40% by 2030, and (3)
favorable demographics - average age of home buyers is 35 years, and currently,
~60% of India's population is below the age of 30.
Growth momentum remains healthy
Higher disbursements seen in tier-II and tier-III cities, as affordability in metros
such as Mumbai and Delhi has reduced. Prices in these cities are stabilizing, but are
unlikely to reduce considerably.
In 1QFY12, sanctions and disbursements grew at a healthy pace of 22% YoY and
20% YoY, respectively. Overall AUM grew by 21% YoY.
Business growth in the current quarter so far has been in line with 1QFY12, which
should translate into ~20% YoY asset growth in 2QFY12.
For FY12, the management expects to grow its loan book by 18-20%.
Spreads likely to remain stable
The company was able to sustain its spread at ~2.3% in 1QFY12. The management
expects spreads to remain within the historical band of 2.15-2.35%.
HDFC has hiked its lending rates by ~100bp in the current quarter and still has
headroom for another 50bp increase.
Other highlights
HDFC has tied up with IndusInd Bank for sourcing loans.
During the year to date period, HDFC has sold loans worth INR12.5b to HDFC Bank.
For the full year, this could be INR50b-60b.
Keen on listing the life insurance arm, but not anytime before March 2012.
Asset quality is likely to remain stable. Portfolio mix would remain steady, with
developer exposure at 10-14%.
Valuation and view
We expect HDFC to record an EPS of INR28 in FY12 and INR33 in FY13, translating
into EPS CAGR of 16% over FY11-13. Core RoE would be over 26% and RoA would
remain steady at ~2.8%. The stock trades at 4.2x FY12E and 3.6x FY13E adjusted
BV (price adjusted for value of key ventures and book value adjusted for investment
in those ventures). Valuations remain rich. Maintain Neutral.
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