EARNINGS REVIEW
Housing Development Finance Corporation
Sell Equity Research
Below expectations on lower top line/spreads; Retain Sell
What surprised us
HDFC reported 1QFY14 PAT of Rs11.7bn (+17% yoy), 6% below GSe and
2% below Bloomberg consensus. Adjusting for dividends, PAT grew 13.5%
yoy and missed our estimates by 11%. Key highlights: 1) NII came in at
Rs15.2bn (+17% yoy), 10% below Gse as cost of funds (calculated) came in
higher than our estimates. 2) Lending spreads (calculated) declined 34bp
yoy on higher cost of funds and lower yields as high yield developer book
grew at a modest pace of 11% yoy. 3) Non-interest income was 6% ahead
of Gse on higher dividend (Rs 2.2bn, +28% vs Gse) and fee income (+4% vs
Gse, +12% yoy) while capital gains booked during the quarter were nil. 4)
Disbursements grew a healthy 17% yoy, 2% above GSe, driven by the
individuals segment. Loan book grew 19% yoy, led by loans to individuals,
which grew a strong 24% yoy (+6% qoq). 5) Asset quality remained stable
as gross NPLs were at 0.8% of loans but NPLs on the non-individual loan
book have now moved up to 1.1% (+17bps qoq and +8bps yoy). HDFC
booked provisions of Rs300mn (33% below GSe) vs. GSe of Rs448mn.
Going forward, with the interest rate shifting upwards (1Y/10Y yields up
40-140bps respectively), lending spreads could remain under pressure in
the coming quarters.
What to do with the stock
We fine tune our FY14E-FY16E EPS estimates to incorporate trends seen in
1QFY13 but retain our 12m SOTP-based TP of Rs740. HDFC is currently
trading at 3.5X FY14E core mortgage book and 18X standalone FY14E EPS,
valuations which are at a premium and not reflective of the rising
competition in the housing finance space which could put pressure on
profitability. Risks: higher spreads, lower-than-estimated competition
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Housing Development Finance Corporation
Sell Equity Research
Below expectations on lower top line/spreads; Retain Sell
What surprised us
HDFC reported 1QFY14 PAT of Rs11.7bn (+17% yoy), 6% below GSe and
2% below Bloomberg consensus. Adjusting for dividends, PAT grew 13.5%
yoy and missed our estimates by 11%. Key highlights: 1) NII came in at
Rs15.2bn (+17% yoy), 10% below Gse as cost of funds (calculated) came in
higher than our estimates. 2) Lending spreads (calculated) declined 34bp
yoy on higher cost of funds and lower yields as high yield developer book
grew at a modest pace of 11% yoy. 3) Non-interest income was 6% ahead
of Gse on higher dividend (Rs 2.2bn, +28% vs Gse) and fee income (+4% vs
Gse, +12% yoy) while capital gains booked during the quarter were nil. 4)
Disbursements grew a healthy 17% yoy, 2% above GSe, driven by the
individuals segment. Loan book grew 19% yoy, led by loans to individuals,
which grew a strong 24% yoy (+6% qoq). 5) Asset quality remained stable
as gross NPLs were at 0.8% of loans but NPLs on the non-individual loan
book have now moved up to 1.1% (+17bps qoq and +8bps yoy). HDFC
booked provisions of Rs300mn (33% below GSe) vs. GSe of Rs448mn.
Going forward, with the interest rate shifting upwards (1Y/10Y yields up
40-140bps respectively), lending spreads could remain under pressure in
the coming quarters.
What to do with the stock
We fine tune our FY14E-FY16E EPS estimates to incorporate trends seen in
1QFY13 but retain our 12m SOTP-based TP of Rs740. HDFC is currently
trading at 3.5X FY14E core mortgage book and 18X standalone FY14E EPS,
valuations which are at a premium and not reflective of the rising
competition in the housing finance space which could put pressure on
profitability. Risks: higher spreads, lower-than-estimated competition
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