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HDFC (HDFC)
Banks/Financial Institutions
Lower NII and capital gains pull down earnings. HDFC’s PAT growth moderated
to10% yoy in 3QFY12 due to lower NII and capital gains. Despite concerns about a
slowdown in metros, loan growth was strong (retail loans were up 20% yoy; overall
loans were up 21% compared with 19% yoy growth in 2QFY12). At 4.1X PBR
FY2013E, we believe the stock is fully priced-in. We tweak estimates and retain our
REDUCE rating with a target price of Rs730.
Earnings below estimates
HDFC reported PAT of Rs9.8 bn, up 10% yoy and 8% below estimates. Lower capital gains (on a
large base of 3QFY11) and lower NII due to significant rise in interest expenses pulled down
earnings.
Loan growth strong, approvals grow by 21% yoy
HDFC reported 21% growth in balance sheet loans due to 19% growth in disbursements. Loans
under management were up 21% yoy; growth of non-retail loans was marginally higher at 24%
and retail loans on the balance sheet grew by 20%. HDFC’s growth seems strong despite
concerns about a slowdown in real estate markets. The management highlighted that MMR
(Mumbai Metropolitan Region) and NCR (National Capital Region) had seen a slowdown. Mumbai
is now the third largest market for HDFC, against being the largest centre a few quarters earlier.
Trends in tier-II cities remain mixed though smaller towns like Indore and Bhopal continue to
report high growth. Notably, it is likely that less aggression from SBI helped HDFC and other
housing finance companies to gain share.
NII declines qoq, likely distorted by MTM losses and accounting policy change
HDFC reported spreads of 2.3%, which were stable qoq. NIM (as per our calculations) declined to
3.5% from 3.7% in 2QFY12 and 3.8% in 3QFY11, likely due to faster growth in interest expenses.
We believe that re-pricing up of fixed rate loans by ~1.5% into floating rate loans in FY2013E will
improve margins.
HDFC has exposure to cross currency interest rate swaps (aggregating about US$650 mn) in order
to convert fixed rate Rupee liability on loans into floating rates benchmarked with LIBOR. Most of
these instruments have been covered (hedged) for INR-USD rate of Rs48-50. Since the Rupee
depreciated significantly during the quarter, HDFC accounted for MTM losses (beyond the INR-USD
conversion rate of Rs48-50).
HDFC’s management highlighted that higher expenses/losses pertaining to cross-current rate
swaps of about Rs1 bn pulled down NII for the quarter. Excluding this, reported NII was in
line with estimates. Further, HDFC capitalized the MTM liability of Rs4.14 bn in its balance
sheet. This follows the amendment in AS11 on accounting for forex loans, which permits
such a capitalization.
In previous instances, HDFC could net-off MTM losses with the present value of the savings
in interest expenses due to conversion of fixed rate loans to floating rates. The revised AS11
does not permit such a nett-off, which is a likely reason for higher expenses in this account.
We would seek more details on these facilities (hedges and expenses/losses accrued thereof)
from the management.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
HDFC (HDFC)
Banks/Financial Institutions
Lower NII and capital gains pull down earnings. HDFC’s PAT growth moderated
to10% yoy in 3QFY12 due to lower NII and capital gains. Despite concerns about a
slowdown in metros, loan growth was strong (retail loans were up 20% yoy; overall
loans were up 21% compared with 19% yoy growth in 2QFY12). At 4.1X PBR
FY2013E, we believe the stock is fully priced-in. We tweak estimates and retain our
REDUCE rating with a target price of Rs730.
Earnings below estimates
HDFC reported PAT of Rs9.8 bn, up 10% yoy and 8% below estimates. Lower capital gains (on a
large base of 3QFY11) and lower NII due to significant rise in interest expenses pulled down
earnings.
Loan growth strong, approvals grow by 21% yoy
HDFC reported 21% growth in balance sheet loans due to 19% growth in disbursements. Loans
under management were up 21% yoy; growth of non-retail loans was marginally higher at 24%
and retail loans on the balance sheet grew by 20%. HDFC’s growth seems strong despite
concerns about a slowdown in real estate markets. The management highlighted that MMR
(Mumbai Metropolitan Region) and NCR (National Capital Region) had seen a slowdown. Mumbai
is now the third largest market for HDFC, against being the largest centre a few quarters earlier.
Trends in tier-II cities remain mixed though smaller towns like Indore and Bhopal continue to
report high growth. Notably, it is likely that less aggression from SBI helped HDFC and other
housing finance companies to gain share.
NII declines qoq, likely distorted by MTM losses and accounting policy change
HDFC reported spreads of 2.3%, which were stable qoq. NIM (as per our calculations) declined to
3.5% from 3.7% in 2QFY12 and 3.8% in 3QFY11, likely due to faster growth in interest expenses.
We believe that re-pricing up of fixed rate loans by ~1.5% into floating rate loans in FY2013E will
improve margins.
HDFC has exposure to cross currency interest rate swaps (aggregating about US$650 mn) in order
to convert fixed rate Rupee liability on loans into floating rates benchmarked with LIBOR. Most of
these instruments have been covered (hedged) for INR-USD rate of Rs48-50. Since the Rupee
depreciated significantly during the quarter, HDFC accounted for MTM losses (beyond the INR-USD
conversion rate of Rs48-50).
HDFC’s management highlighted that higher expenses/losses pertaining to cross-current rate
swaps of about Rs1 bn pulled down NII for the quarter. Excluding this, reported NII was in
line with estimates. Further, HDFC capitalized the MTM liability of Rs4.14 bn in its balance
sheet. This follows the amendment in AS11 on accounting for forex loans, which permits
such a capitalization.
In previous instances, HDFC could net-off MTM losses with the present value of the savings
in interest expenses due to conversion of fixed rate loans to floating rates. The revised AS11
does not permit such a nett-off, which is a likely reason for higher expenses in this account.
We would seek more details on these facilities (hedges and expenses/losses accrued thereof)
from the management.
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