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Housing Development Finance Corporation Ltd Research Report - 21st Jan 2016

Banking | Published on Oct 27th 2015


For 2QFY2016, HDFC posted an 18.2% yoy increase in PAT, which is broadly inline with our expectation. The NII for the quarter grew 6.2% yoy, which is slightly below our expectation due to moderate growth in advances. Loan book growth moderate; Asset quality fairly stable For 2QFY2016, HDFC’s loan book grew by 12.1% yoy, with loans to the individual segment growing by 23% yoy (after adding back loans sold in the preceding 12 months) whereas the corresponding growth in the reported loan book was of 14.0% yoy, which is below our expectation. This is due to greater amount of loans having been sold to HDFC Bank in recent quarters. During the quarter, incremental growth in the loan book came through growth in individual loans, which now constitute almost 69.7% of the total loans portfolio as compared to 68.6% in 2QFY2015. The spread stood largely stable at 2.32% as compared to 2.29% in September 2014, while the NIM contracted to 3.95% from a slightly higher 4% in September 2014, despite spreads widening. In declining rate environment, as HDFC has large Net Worth, even with constant spreads, NIM’s would have a slightly downward bias. Overall, we expect the loan book to grow at a CAGR of 15.0% over FY2015-17E, while the NII growth at a CAGR of 11.6% over the same period. The company continued to keep its asset quality under check, with gross nonperforming assets as a % of total loans rising marginally by 2bp to 0.71% (vs 0.69% in 1QFY2016). The company continues to maintain a 100% Provision Coverage Ratio. Outlook and valuation: HDFC continues to post moderate set of numbers despite sluggish economic environment. Overall, we expect HDFC to post a healthy PAT CAGR of 15.3% over FY2015–17E. The stock has surged significantly from the lows witnessed in the month of August 2015. Currently, HDFC’s core business (after adjusting Rs482/share towards the value of its subsidiaries) trades at 4.5x FY2017E ABV, which in our view, offers limited scope for upside from here on. Hence, we maintain our Neutral rating on the stock.

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CMP 1,275
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Investment Period12 Months

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