29 August 2013
Update | Sector: Financials
HDFC
BSE Sensex
17,996
S&P CNX
5,285
CMP: INR654
TP: INR889
Buy
Superior execution and consistent performance
Resilient on macros; return ratios to remain superior
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
HDFC IN
1,554.7
931/632
-11/-9/-12
1,011.3
14.9
Financial Snapshot (INR b)
Y/E March 2013 2014E 2015E
NII
61.8
73.7
88.6
PAT
Adj. EPS *
BV/Share*
( )/Sh*
ABV
( )
RoAA (%)
Core RoE
(%)
AP/E (x)
P/BV (x)
AP/ABV (x)
* Adjusted
Shareholding pattern %
Promoter
Dom. Inst
Foreign
Others
Jun-13 Mar-13 Jun-12
0.0
0.0
0.0
12.7
12.9
15.1
74.1
74.2
71.3
13.2
12.9
13.6
48.5
26.2
161.7
108.5
2.7
23.8
16.7
4.0
4.0
56.3
30.8
180.9
127.8
2.6
25.6
13.0
3.6
3.1
66.4
36.7
201.3
148.2
2.6
26.1
9.7
3.2
2.4
Housing Development Finance Corp (HDFC) has corrected by 23% and
underperformed the Nifty by 11% since the Reserve Bank of India’s (RBI)
tightening of system-wide liquidity on July 15, 2013. This was on the back of rising
investors’ concerns over higher cost of funds (impacting spreads) and increasing
stress in the real estate segment.
In the current uncertain macro-economic conditions, HDFC is likely to be the most
resilient in asset quality (cash flow-based lending, strong collateral in place etc)
and growth (structural factors to aid).
Subsidiaries/associates are self-funded and thus further dilution is not needed to
take care of their capital requirements; strong internal accrual (core lending RoE
of 26%+) will take care of HDFC’s loan growth requirements.
Based on assets and liability side flexibility, spreads shall remain in the range of
2.15-2.35%.
Led by stable spreads, single digit cost to income ratio and superior asset quality,
return ratios are expected to remain above industry average, with core RoA of
~2.5% and core lending RoE of ~26%.
In the best lending asset class; growth, asset quality to remain healthy
On the back of latent housing demand and structural growth drivers, we believe
18-20% growth will not be a difficult target for HDFC. Though, select urban and
metro markets are witnessing a slowdown in disbursements, company has
ramped up distribution in Tier II and III centers where demand remains buoyant
and is driving growth. No major job losses, lower LTV (65%) and installment to
income ratio (~40%), financing of immovable real asset and the cardinal
principal of lending against cash flows shall keep retail asset quality healthy, in
our view. On the corporate side, prudent risk management, strong security
cover and higher dependence of developers on HDFC shall ensure healthy asset
quality.
Stock Performance (1-year)
Diversified balance sheet mix to ensure stability in spreads
Flexibility in asset (AUM mix individual-corporate at 69:31) and liability side
(deposits 33%, bank loans 8% and rest through bonds, CPs etc) helps HDFC to
maintain spreads at ~2.15-2.35% across cycles. In our view, in case of a
prolonged tightness in the liquidity situation, company will prefer to raise the
lending rates (already up 25bp in current liquidity tightness) and maintain
spreads, than chase growth.
Guzzling subsidiaries turn enablers of capital
Investors are advised to refer
through disclosures made at the
end of the Research Report.
Most of HDFC’s subsidiaries have grown sizably and become self-sufficient to
fund their growth. Further capital infusion in the life insurance business is not
needed as it is profit making now. With the healthy Tier I ratio of 10.5%+, RoE of
Alpesh Mehta
(
Alpesh.Mehta@MotilalOswal.com); +91 22 3982 5415
Sunesh Khanna
(Sunesh.Khanna@MotilalOswal.com); +91 22 3982 5521