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Retail asset quality remains robust: There seems no initial signs of crack in retail
asset quality across product segments, with trends in cheque bounces; first time
skips in installments still shows a robust trend. Management is seeing some
stress on operating environment for SMEs but with ~80% of their portfolio being
working-capital related, HDFCB expects very limited stress in their SME portfolio
(~20% of their loan book). Business banking exposure is largely, either LAP or
property backed, and delinquency trend in this portfolio continues to remain
low.
Growth outlook robust: Loan growth is expected to remian strong at 5-6%
higher growth relative to the system, with strong growth expected to continue
in CV/CE portfolio. Working capital needs continue to remain strong and that
would also aid loan growth. With <15% of the loan book related to term-lending
where there is signifcant slowdown, risks to our ~22-23% growth expectations
seem limited.
Limited risks to profit growth expectations: HDFCB has reported atleast 30%
PAT growth and ~25% of EPS growth from FY04. With moderation in loan
growth expected, PAT growth may be lower than historical growth range but
with no dilution expected, EPS growth would be in line with long-term trend at
~25%. Also, HDFCB does have cost levers and a high provisioning buffer of
Rs10bn which would provide leeway to meet bottom-line expectations.
Accumulate; Valuation gap with high beta peers too high: Our Sep-12 PT of
Rs475/share based on two-stage Gordon growth implies 3.5x Sep-12 book which
is marginally higher than historic trading averages. HDFCB’s low sensitivity to
moderation in growth and conservative provisioning is comforting but valuation
gap to high beta peers have inched to Lehman levels and this significantly limits
further outperformance.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Retail asset quality remains robust: There seems no initial signs of crack in retail
asset quality across product segments, with trends in cheque bounces; first time
skips in installments still shows a robust trend. Management is seeing some
stress on operating environment for SMEs but with ~80% of their portfolio being
working-capital related, HDFCB expects very limited stress in their SME portfolio
(~20% of their loan book). Business banking exposure is largely, either LAP or
property backed, and delinquency trend in this portfolio continues to remain
low.
Growth outlook robust: Loan growth is expected to remian strong at 5-6%
higher growth relative to the system, with strong growth expected to continue
in CV/CE portfolio. Working capital needs continue to remain strong and that
would also aid loan growth. With <15% of the loan book related to term-lending
where there is signifcant slowdown, risks to our ~22-23% growth expectations
seem limited.
Limited risks to profit growth expectations: HDFCB has reported atleast 30%
PAT growth and ~25% of EPS growth from FY04. With moderation in loan
growth expected, PAT growth may be lower than historical growth range but
with no dilution expected, EPS growth would be in line with long-term trend at
~25%. Also, HDFCB does have cost levers and a high provisioning buffer of
Rs10bn which would provide leeway to meet bottom-line expectations.
Accumulate; Valuation gap with high beta peers too high: Our Sep-12 PT of
Rs475/share based on two-stage Gordon growth implies 3.5x Sep-12 book which
is marginally higher than historic trading averages. HDFCB’s low sensitivity to
moderation in growth and conservative provisioning is comforting but valuation
gap to high beta peers have inched to Lehman levels and this significantly limits
further outperformance.
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