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HDFC reported 2Q12 PAT at Rs 9.71bn, up 20% y/y, in line with our
forecasts and slightly ahead of consensus. A small NII miss was covered
by higher asset sales. HDFC ticked all the regular boxes: ~20% loan
growth, stable NIMs and minuscule NPLs.
Funding shifts away from banks. Bonds and deposits drove the entire
incremental funding for the quarter, with loans (largely from banks)
running off. This is partially a tactical switch typical in a high interestrate
scenario, and partially a structural move away from banks because
of high base rates. HDFC’s diversity in borrowing options (banks,
market retail) is one of the drivers of its resilience.
Loan growth. Demand remains resilient, with AUM growth of 20%
(retail 19%). Demand from HDFC’s core customer segment, the middleclass
owner-occupier, is less cyclical and rate-inelastic. Ticket-sizes
remain moderate (Rs1.9m) and HDFC's continues to shift focus to
smaller towns and suburbs to protect the quality of its book.
Asset quality robust. Gross NPLs remain low at 0.8%. HDFC's credit
quality continues to be very strong. HDFC has absorbed the one-time hit
(Rs 2.6bn) from the new regulatory requirement of 0.4% general
provisioning through the reserves– it still maintains loan loss reserves in
excess of regulatory requirements. Incremental provisioning through the
P&L may impact earnings by ~3%.
Remain positive. We maintain our OW on HDFC with a Mar-12 PT of
Rs 800. We think the premium valuations are supported by high and
improving ROEs, low NPLs driving best-in-class profit stability, and the
resilience to cycles.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
HDFC reported 2Q12 PAT at Rs 9.71bn, up 20% y/y, in line with our
forecasts and slightly ahead of consensus. A small NII miss was covered
by higher asset sales. HDFC ticked all the regular boxes: ~20% loan
growth, stable NIMs and minuscule NPLs.
Funding shifts away from banks. Bonds and deposits drove the entire
incremental funding for the quarter, with loans (largely from banks)
running off. This is partially a tactical switch typical in a high interestrate
scenario, and partially a structural move away from banks because
of high base rates. HDFC’s diversity in borrowing options (banks,
market retail) is one of the drivers of its resilience.
Loan growth. Demand remains resilient, with AUM growth of 20%
(retail 19%). Demand from HDFC’s core customer segment, the middleclass
owner-occupier, is less cyclical and rate-inelastic. Ticket-sizes
remain moderate (Rs1.9m) and HDFC's continues to shift focus to
smaller towns and suburbs to protect the quality of its book.
Asset quality robust. Gross NPLs remain low at 0.8%. HDFC's credit
quality continues to be very strong. HDFC has absorbed the one-time hit
(Rs 2.6bn) from the new regulatory requirement of 0.4% general
provisioning through the reserves– it still maintains loan loss reserves in
excess of regulatory requirements. Incremental provisioning through the
P&L may impact earnings by ~3%.
Remain positive. We maintain our OW on HDFC with a Mar-12 PT of
Rs 800. We think the premium valuations are supported by high and
improving ROEs, low NPLs driving best-in-class profit stability, and the
resilience to cycles.
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