In-line quarter; operationally healthy trend… • HDFC :: ICICI Securities, report

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In-line quarter; operationally healthy trend… • HDFC’s standalone Q3FY15 earnings came in line at | 1426 crore, up 11% YoY led by NII growth of 15% YoY to | 1929 crore. Other income traction was strong at 33.7% YoY to | 365 crore led by gains of | 113 crore on stake sale in HDFC Life to the Azim Premji Trust • Advances growth excluding loans sold was slightly below estimate at 14.4% YoY to | 219951 crore. Including loans sold, growth remained strong at 19%. Incrementally, loan growth remained tilted towards individual loans • NIMs moderated a bit by 5 bps QoQ to 3.95%. Spreads were maintained at 2.31%. Asset quality stayed steady QoQ as estimated Healthy growth trend in advances to continue HDFC Ltd is the first specialised housing finance company (HFC) in India and also the largest. Including the bank, it comes second after SBI with a market share of ~16% (on an individual loan basis). Its total outstanding loan book stands at | 219951 crore as on Q3FY15 of which individual loans account for 70% while the corporate proportion has declined to 30% from 36% in FY12. HDFC has witnessed healthy traction of 18% CAGR in the past four years compared to industry CAGR of 17% mainly driven by the individual loan segment. The company has been able to maintain its leading position despite a challenging macro environment. This is owing to its unique strengths such as a strong franchise, brand pedigree, in-house model, large network and a dedicated business. We maintain loan growth of 18% CAGR over FY14-16E to | 272822 crore. Flexible borrowing profile enables stability in spreads HDFC has a healthy track record of sustaining spreads and NIMs above 2% and 3.5%, respectively, across volatile interest rate cycles. The key reasons are a flexible borrowing profile, higher credit rating and stable asset-liability management (ALM). Also, it earns ~1.38% spread on loans sold to banks (| 6944 crore loans sold in FY14). We expect NIMs (calculated) of ~3.4 to 3.5% with reported spreads maintained between 2.25% and 2.3% over the next two years. Resilient asset quality to continue HDFC has one of the best asset quality parameters in the industry. Its GNPA as on FY14 is 0.7% while NNPA was nil on account of 100% provision coverage ratio. The credit cost as on FY14 was 0.05%, which was lowest among industry peers. Exposure to real estate developers (~12% of the total loan portfolio) is backed by collateral of 2.0x the loan size. We expect the asset quality to remain resilient with adequate provision coverage. It carries excess provision of | 387 crore over regulatory requirement. Healthy operational performance provides comfort; maintain HOLD HDFC has commanded premium valuations over the years due to its consistent track record in earnings and business growth. Return ratios have remained healthy across economic cycles with RoE >20% and RoA >2.5%. We expect this to be maintained over FY14-16E. The consolidated PAT as on FY14 stood at | 7948 crore with subsidiaries contributing 32%. Even consolidated RoEs have been healthy at ~21%. Over FY14-16E, we maintain standalone earnings CAGR of 14% to | 7013 crore. However, we raise our SOTP based target price to | 1350 (| 1056 earlier) as we roll over to FY17E. We maintain our HOLD recommendation on the stock.

LINK
http://content.icicidirect.com/mailimages/IDirect_HDFCLtd_Q3FY15.pdf