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It was business as usual for HDFC Ltd in 2QFY12. HDFC continued to deliver largely stable
spreads and asset quality remained good. The incremental regulatory provision requirement was
charged off against reserves in 2QFY12. Valuations of the core mortgage business appear
attractive. Maintain Buy.
2QFY12: Business as usual
Approvals rose about 15% yoy in 2QFY12 (+18% yoy in 1HFY12) and disbursements grew about
18% yoy in 2QFY12 (+19% yoy in 1HFY12). The individual loan book grew 17.6% yoy as of
September 2011 (+3% qoq), while the corporate loan book rose 23.6% yoy (+1% qoq). With
individual loans at about 63% and corporate loans at about 36%, the loan book mix remained
largely stable qoq (see Chart 1). Reported spreads remained stable qoq at about 2.3% in
2QFY12. The reported net interest income grew 15.8% yoy in 1HFY12. However, adjusted for the
interest on zero coupon bonds (ZCB) – Rs3.4bn in 1HFY12 vs Rs5.3bn in FY11 – the net interest
income rose about 13.6% yoy in 1HFY12. Higher dividend income and profit on the Intelenet
stake sale in 2QFY12 boosted non-interest income in 2QFY12.
NHB provision requirement for standard assets and others
National Housing Bank (NHB) directed housing finance companies (HFC) in August 2011 to
make 40bp standard asset provision (no standard provision requirement earlier) on retail
mortgages. It also increased the slab-wise provisioning requirement for bad loans. Accordingly,
HDFC provided about Rs2.6bn (net of deferred tax) in 2QFY12 to meet the incremental provision
requirement. This was, however, charged off from reserves carried on balance sheet. Against the
total provision requirement of about Rs12bn as of September 2011 (see Table 2), HDFC had
about Rs15.3bn, implying excess provisions of about Rs3.3bn (same as the June 2011 level).
No change to our estimates: Buy maintained
Our earnings estimates remain unchanged. We mark to market the value of listed associates in
our SOTP valuation and arrive at a revised target price of Rs768 (from Rs763). The outstanding
ZCBs are about Rs72bn as of date (see Table 3) against investments in subsidiaries/associates
of about Rs80bn. We charge off interests on ZCB to the income statement, which largely explains
the difference between our estimates and the Bloomberg consensus. However, this adjustment
will have no impact on our book value calculation. At the current market price, the core mortgage
business trades at 4.1x FY13F book value
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
It was business as usual for HDFC Ltd in 2QFY12. HDFC continued to deliver largely stable
spreads and asset quality remained good. The incremental regulatory provision requirement was
charged off against reserves in 2QFY12. Valuations of the core mortgage business appear
attractive. Maintain Buy.
2QFY12: Business as usual
Approvals rose about 15% yoy in 2QFY12 (+18% yoy in 1HFY12) and disbursements grew about
18% yoy in 2QFY12 (+19% yoy in 1HFY12). The individual loan book grew 17.6% yoy as of
September 2011 (+3% qoq), while the corporate loan book rose 23.6% yoy (+1% qoq). With
individual loans at about 63% and corporate loans at about 36%, the loan book mix remained
largely stable qoq (see Chart 1). Reported spreads remained stable qoq at about 2.3% in
2QFY12. The reported net interest income grew 15.8% yoy in 1HFY12. However, adjusted for the
interest on zero coupon bonds (ZCB) – Rs3.4bn in 1HFY12 vs Rs5.3bn in FY11 – the net interest
income rose about 13.6% yoy in 1HFY12. Higher dividend income and profit on the Intelenet
stake sale in 2QFY12 boosted non-interest income in 2QFY12.
NHB provision requirement for standard assets and others
National Housing Bank (NHB) directed housing finance companies (HFC) in August 2011 to
make 40bp standard asset provision (no standard provision requirement earlier) on retail
mortgages. It also increased the slab-wise provisioning requirement for bad loans. Accordingly,
HDFC provided about Rs2.6bn (net of deferred tax) in 2QFY12 to meet the incremental provision
requirement. This was, however, charged off from reserves carried on balance sheet. Against the
total provision requirement of about Rs12bn as of September 2011 (see Table 2), HDFC had
about Rs15.3bn, implying excess provisions of about Rs3.3bn (same as the June 2011 level).
No change to our estimates: Buy maintained
Our earnings estimates remain unchanged. We mark to market the value of listed associates in
our SOTP valuation and arrive at a revised target price of Rs768 (from Rs763). The outstanding
ZCBs are about Rs72bn as of date (see Table 3) against investments in subsidiaries/associates
of about Rs80bn. We charge off interests on ZCB to the income statement, which largely explains
the difference between our estimates and the Bloomberg consensus. However, this adjustment
will have no impact on our book value calculation. At the current market price, the core mortgage
business trades at 4.1x FY13F book value
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