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HDFC LTD
PRICE: RS.687 RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.720 FY13E P/E: 21.5X; P/ABV: 4.7X
Q3FY12 results: Core performance almost in line; Maintain
Accumulate…
q Net Interest Income (NII) grew 12.5% on back of healthy 21.2% growth in
loan book (disbursement was also healthy at 19% YoY) despite slight
decline in spread to 2.27% during 9MFY12 from 2.33% during 9MFY11.
Net profit growth has slightly moderated (10.1% YoY) on back of lower
treasury profit (Rs.0.88 bn during Q3FY12 as against Rs.1.67 bn during
Q3FY11).
q During 9MFY12, both total approvals and disbursements grew at 19%
each. Retail loan book grew at 20%, while corporate segments witnessed
impressive growth (25%). HDFC's mortgage loan book grew 21.2% YoY
to Rs.1322.1 bn (excluding loan sell down of Rs.42.21 bn during LTM); if
included, loan book growth would improve to ~25% YoY.
q Its asset quality remained healthy with gross NPA improving to 0.82% at
the end of Q3FY12 from 0.85% at the end of Q3FY11. However, consistency
lies in the downward secular trajectory, where its gross NPA has
declined YoY for last 28 consecutive quarters.
q HDFC has been consistently delivering earnings growth (23% CAGR during
FY06-11); however, FY12 earnings growth would be moderate on
back of high base (strategic stake sale in IL&FS and Lafarge during
H2FY11). We maintain ACCUMULATE rating on the stock with unchanged
TP of Rs.720 based on SOTP (core business valued at Rs.485, 3.5x FY13
ABV and Rs.235 for subsidiaries).
Core operating performance almost in line with our estimates;
approval & disbursement continued to be healthy
HDFC Ltd has reported a healthy growth in its core earnings during Q3FY12. Its Net
Interest Income (NII) grew 12.5% on back of healthy 21.2% growth in loan book
(disbursement was also healthy at 19% YoY) despite slight decline in spread to
2.27% during 9MFY12 from 2.33% during 9MFY11.
Net profit growth has slightly moderated (10.1% YoY) on back of lower treasury
profit (Rs.0.88 bn during Q3FY12 as against Rs.1.67 bn during Q3FY11).
During 9MFY12, both total approvals and disbursements grew at 19% each. Retail
loan book grew at 20%, while corporate segments witnessed impressive growth
(25%). HDFC's mortgage loan book grew 21.2% YoY to Rs.1322.1 bn (excluding
loan sell down of Rs.42.21 bn during LTM); if included, loan book growth would
improve to ~25% YoY.
We believe favorable trends like rising urbanization and India's demographic dividend
will continue to drive demand for mortgages in the near foreseeable future
(growth coming from non-metros). We have modeled ~16% loan growth during
FY12 and FY13 in the prevailing high interest rate environment; however, we believe
things are likely to improve as we are close to peak of interest rate cycle.
Spread declined marginally; we opine it to remain largely stable
at current level during FY12
Its spread declined marginally to 2.27% during 9MFY12 as against 2.33% witnessed
during 9MFY12. Investment book declined in second consecutive quarters - 10.3%
QoQ during Q3FY12 after declining by 13.6%, a quarter earlier.
Although there are fears of some pressure on its spread, going forward, we believe
with some softening in incremental cost of funds, its spread is likely to be in the
range of 2.2-2.3% during FY12E.
Even though costs of borrowing are rising, we believe spreads are likely to be protected
by the improvement in yields (10 Yr G Sec yield came down from ~9.0% to
~8.2% levels). We expect spread on corporate loans (loans to developers, corporate
and rent discounting) to improve as most public sector banks are averse of lending
to these players.
Moreover, with change in competitive landscape where most of the banks (competitive
landscape has turned positive for HDFC Ltd) have withdrawn their teaser-rate
products, its spread is likely to be sustained at healthy levels.
Asset quality has continued to improve - gross NPA declined YoY
for last 28 consecutive quarters.
Its asset quality remained healthy with gross NPA improving to 0.82% at the end of
Q3FY12 from 0.85% at the end of Q3FY11. However, consistency lies in the downward
secular trajectory, where its gross NPA has declined YoY for last 28 consecutive
quarters.
Based on a six months overdue basis, the non-performing loans at the end of
Q3FY12 stood at 0.53% of the loan portfolio as against 0.54%, a quarter earlier. It
is carrying provision of Rs.15.84 bn as against the regulatory requirement of Rs.12.29
bn. This also includes Rs.4.4 bn as the standard asset provisions under Dual Rate
Home Loans which is likely to written back at the end of April 2013.
Valuation and recommendation
HDFC has been consistently delivering earnings growth (23% CAGR during FY06-
11); however, FY12 earnings growth would be moderate (12.1% YoY) on back of
high base (strategic stake sale in IL&FS and Lafarge during H2FY11).
At CMP, stock is trading at 3.3x P/ABV, post striping the value of subsidiaries and
investments. We maintain ACCUMULATE rating on the stock with unchanged TP of
Rs.720 based on SOTP (core business valued at Rs.485, 3.5x FY13 ABV and Rs.235
for subsidiaries).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
HDFC LTD
PRICE: RS.687 RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.720 FY13E P/E: 21.5X; P/ABV: 4.7X
Q3FY12 results: Core performance almost in line; Maintain
Accumulate…
q Net Interest Income (NII) grew 12.5% on back of healthy 21.2% growth in
loan book (disbursement was also healthy at 19% YoY) despite slight
decline in spread to 2.27% during 9MFY12 from 2.33% during 9MFY11.
Net profit growth has slightly moderated (10.1% YoY) on back of lower
treasury profit (Rs.0.88 bn during Q3FY12 as against Rs.1.67 bn during
Q3FY11).
q During 9MFY12, both total approvals and disbursements grew at 19%
each. Retail loan book grew at 20%, while corporate segments witnessed
impressive growth (25%). HDFC's mortgage loan book grew 21.2% YoY
to Rs.1322.1 bn (excluding loan sell down of Rs.42.21 bn during LTM); if
included, loan book growth would improve to ~25% YoY.
q Its asset quality remained healthy with gross NPA improving to 0.82% at
the end of Q3FY12 from 0.85% at the end of Q3FY11. However, consistency
lies in the downward secular trajectory, where its gross NPA has
declined YoY for last 28 consecutive quarters.
q HDFC has been consistently delivering earnings growth (23% CAGR during
FY06-11); however, FY12 earnings growth would be moderate on
back of high base (strategic stake sale in IL&FS and Lafarge during
H2FY11). We maintain ACCUMULATE rating on the stock with unchanged
TP of Rs.720 based on SOTP (core business valued at Rs.485, 3.5x FY13
ABV and Rs.235 for subsidiaries).
Core operating performance almost in line with our estimates;
approval & disbursement continued to be healthy
HDFC Ltd has reported a healthy growth in its core earnings during Q3FY12. Its Net
Interest Income (NII) grew 12.5% on back of healthy 21.2% growth in loan book
(disbursement was also healthy at 19% YoY) despite slight decline in spread to
2.27% during 9MFY12 from 2.33% during 9MFY11.
Net profit growth has slightly moderated (10.1% YoY) on back of lower treasury
profit (Rs.0.88 bn during Q3FY12 as against Rs.1.67 bn during Q3FY11).
During 9MFY12, both total approvals and disbursements grew at 19% each. Retail
loan book grew at 20%, while corporate segments witnessed impressive growth
(25%). HDFC's mortgage loan book grew 21.2% YoY to Rs.1322.1 bn (excluding
loan sell down of Rs.42.21 bn during LTM); if included, loan book growth would
improve to ~25% YoY.
We believe favorable trends like rising urbanization and India's demographic dividend
will continue to drive demand for mortgages in the near foreseeable future
(growth coming from non-metros). We have modeled ~16% loan growth during
FY12 and FY13 in the prevailing high interest rate environment; however, we believe
things are likely to improve as we are close to peak of interest rate cycle.
Spread declined marginally; we opine it to remain largely stable
at current level during FY12
Its spread declined marginally to 2.27% during 9MFY12 as against 2.33% witnessed
during 9MFY12. Investment book declined in second consecutive quarters - 10.3%
QoQ during Q3FY12 after declining by 13.6%, a quarter earlier.
Although there are fears of some pressure on its spread, going forward, we believe
with some softening in incremental cost of funds, its spread is likely to be in the
range of 2.2-2.3% during FY12E.
Even though costs of borrowing are rising, we believe spreads are likely to be protected
by the improvement in yields (10 Yr G Sec yield came down from ~9.0% to
~8.2% levels). We expect spread on corporate loans (loans to developers, corporate
and rent discounting) to improve as most public sector banks are averse of lending
to these players.
Moreover, with change in competitive landscape where most of the banks (competitive
landscape has turned positive for HDFC Ltd) have withdrawn their teaser-rate
products, its spread is likely to be sustained at healthy levels.
Asset quality has continued to improve - gross NPA declined YoY
for last 28 consecutive quarters.
Its asset quality remained healthy with gross NPA improving to 0.82% at the end of
Q3FY12 from 0.85% at the end of Q3FY11. However, consistency lies in the downward
secular trajectory, where its gross NPA has declined YoY for last 28 consecutive
quarters.
Based on a six months overdue basis, the non-performing loans at the end of
Q3FY12 stood at 0.53% of the loan portfolio as against 0.54%, a quarter earlier. It
is carrying provision of Rs.15.84 bn as against the regulatory requirement of Rs.12.29
bn. This also includes Rs.4.4 bn as the standard asset provisions under Dual Rate
Home Loans which is likely to written back at the end of April 2013.
Valuation and recommendation
HDFC has been consistently delivering earnings growth (23% CAGR during FY06-
11); however, FY12 earnings growth would be moderate (12.1% YoY) on back of
high base (strategic stake sale in IL&FS and Lafarge during H2FY11).
At CMP, stock is trading at 3.3x P/ABV, post striping the value of subsidiaries and
investments. We maintain ACCUMULATE rating on the stock with unchanged TP of
Rs.720 based on SOTP (core business valued at Rs.485, 3.5x FY13 ABV and Rs.235
for subsidiaries).
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