STOCK IN FOCUS
* HDFC closed 3.5% higher, outperforming benchmark NIFTY Index by 1.7%.
* Over the last few years, HDFC Ltd. has proven its competitive edge over its peers through decent growth in business, stable spreads, well-managed asset quality and better performance in other financial business subsidiaries. Consequently, the stock traded at a premium to its peers with best-in-class return ratios.
* Core mortgage business of the company is expected to grow at strong pace led by the healthy growth in affordable housing segment. Improving macroeconomic dynamics coupled with positive change in government policy towards the affordable housing is key driver for the segment.
* Reductions in borrowing rates along with rising income levels are expected to contribute towards improving demand for housing loans. Hence, we expect healthy growth in loan disbursements over the next 2-3 years.
* We expect further improvement in operating performance in coming quarters on the back of healthy NII growth and listing of insurance arm. Thus, we maintain our BUY recommendation on the stock with an upwardly revised Target Price of Rs1,580, valuing the standalone entity at 3.5x FY18E adjusted BV and subsidiaries fetching Rs615/share (after deducting holding company discount of 15%).
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