Rating: Hold; Target Price: Rs860; CMP: Rs841; Upside: 2%
Retail boosts growth
Uncertainties and cautious approach towards lending to the real estate
market has turned HDFC ltd towards retail loans for growth. This is
reflected in successive 8-quarters of 24% yoy (average) growth in the
individual loan portfolio and reveals the strength of the brand,
leadership position and deep understanding of markets. While growth
rates are bound to trend lower, we expect the mortgage giant to
witness 17% CAGR in disbursement/ loan portfolio over FY13-16E.
Diversified borrowing profile will help maintain spreads at 2.3%
levels. Also, with limited asset quality concerns, we build in RoA/
RoE at 2.7%/ 21% over FY13-16E. HOLD
$ Inline results, growth continues to be retail in nature: Q3FY14 NII
at Rs16.8bn (+14% yoy) and reported PAT at Rs12.8bn (+12% yoy) were in
line with estimates. However, adjusted for treasury gains, PAT at
Rs12.5bn, grew 17% yoy. Reported NIM at 4%, declined 10bps qoq.
Overall spreads at 2.25% (9mFY14) were in the nature of retail (1.97%)
and non-retail (2.82%). Loan portfolio (ex-sell down) grew 19.1% yoy
and was primarily in the nature of individual loans (+24.4% yoy).
Disbursements grew 17% yoy with retail disbursements up 20% yoy.
$ Borrowing shifted back to debentures; C/income ratio best in the
industry: Easing money market rates post the July-Sept’13 episode and
arrangement with banks to enable repayment of term loans saw HDFC
shift its borrowing mix to debentures. In Q3 the share of bond
borrowings increased to 56% (+700bps qoq) and as a result cost of
funds (calc.) was at 7.6%, a decline of 23bps qoq. With relatively
benign money market rates vis-à-vis bank loans, we expect the mix to
remain in favour of non-bank loans. C/income ratio at sub-10% is the
best in the industry and is due to in-house generation of 70% of
business.
$ Healthy provisioning to act as buffer against NPAs: Though not
alarming, retail GNPA at Rs7.5bn (0.57% of loan) has grown 14%+ yoy
for the second successive quarter. Corporate GNPA at Rs7.2bn (1.2% of
loans) includes one large corporate account, adjusted for which, the
NPA position is manageable and adequately provided for with cumulative
provisioning at 95bps of loans. Overall GNPA at 0.77% is among the
lowest in its peer set.
$ Limited near term catalyst; Retain HOLD: HDFC has underperformed the
broader index in the past 6-month/ 1-year on concerns over a) sticky
interest rates impacting margins b) fears over rise in NPAs in the
event of decline in property prices and c) slowdown in corporate
portfolio. We are factoring 17% CAGR in NII/ loan portfolio and expect
core mortgage RoEs to trade at 28% levels over FY13-16E against 33%
during FY10-12. Our SOTP based target price remains unchanged at
Rs860. Lower than expected loan growth and prolonged period of sticky
rates remain key risks.
Thanks & Regards
��
Retail boosts growth
Uncertainties and cautious approach towards lending to the real estate
market has turned HDFC ltd towards retail loans for growth. This is
reflected in successive 8-quarters of 24% yoy (average) growth in the
individual loan portfolio and reveals the strength of the brand,
leadership position and deep understanding of markets. While growth
rates are bound to trend lower, we expect the mortgage giant to
witness 17% CAGR in disbursement/ loan portfolio over FY13-16E.
Diversified borrowing profile will help maintain spreads at 2.3%
levels. Also, with limited asset quality concerns, we build in RoA/
RoE at 2.7%/ 21% over FY13-16E. HOLD
$ Inline results, growth continues to be retail in nature: Q3FY14 NII
at Rs16.8bn (+14% yoy) and reported PAT at Rs12.8bn (+12% yoy) were in
line with estimates. However, adjusted for treasury gains, PAT at
Rs12.5bn, grew 17% yoy. Reported NIM at 4%, declined 10bps qoq.
Overall spreads at 2.25% (9mFY14) were in the nature of retail (1.97%)
and non-retail (2.82%). Loan portfolio (ex-sell down) grew 19.1% yoy
and was primarily in the nature of individual loans (+24.4% yoy).
Disbursements grew 17% yoy with retail disbursements up 20% yoy.
$ Borrowing shifted back to debentures; C/income ratio best in the
industry: Easing money market rates post the July-Sept’13 episode and
arrangement with banks to enable repayment of term loans saw HDFC
shift its borrowing mix to debentures. In Q3 the share of bond
borrowings increased to 56% (+700bps qoq) and as a result cost of
funds (calc.) was at 7.6%, a decline of 23bps qoq. With relatively
benign money market rates vis-à-vis bank loans, we expect the mix to
remain in favour of non-bank loans. C/income ratio at sub-10% is the
best in the industry and is due to in-house generation of 70% of
business.
$ Healthy provisioning to act as buffer against NPAs: Though not
alarming, retail GNPA at Rs7.5bn (0.57% of loan) has grown 14%+ yoy
for the second successive quarter. Corporate GNPA at Rs7.2bn (1.2% of
loans) includes one large corporate account, adjusted for which, the
NPA position is manageable and adequately provided for with cumulative
provisioning at 95bps of loans. Overall GNPA at 0.77% is among the
lowest in its peer set.
$ Limited near term catalyst; Retain HOLD: HDFC has underperformed the
broader index in the past 6-month/ 1-year on concerns over a) sticky
interest rates impacting margins b) fears over rise in NPAs in the
event of decline in property prices and c) slowdown in corporate
portfolio. We are factoring 17% CAGR in NII/ loan portfolio and expect
core mortgage RoEs to trade at 28% levels over FY13-16E against 33%
during FY10-12. Our SOTP based target price remains unchanged at
Rs860. Lower than expected loan growth and prolonged period of sticky
rates remain key risks.
Thanks & Regards
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