Buy HDFC Ltd : Mortgage financing – Huge opportunity to grab - Sushil Finance
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Buy HDFC Ltd For Target Rs.3,073
Mortgage financing – Huge opportunity to grab
Mortgage penetration in India is positively correlated to per capita income and affordability of buyers. Over the years, with increase in per capita income and stagnant home prices, mortgage to GDP has witnessed rise to 12.4% as on CY19, but still lower than developed and other emerging economies. Government have initiated many steps like Housing for All, Last mile Affordable Housing Funding Package etc to provide impetus to housing sector. With rise in nuclearization, favorable demographics and initiatives from Govt. to increase housing sales, there is scope for further increase in mortgage penetration in India.
Individual home loan to witness a pick up
Individual home sales are seeing good traction mainly due to combination of low property prices, falling interest rates and boost in sales due to reduction in stamp duty in few states. Disbursement in 3QFY21 have been 26% higher than last year (pre Covid period) indicating strong demand for this segment.
Outlook and Valuation
HDFC Ltd has been strong player in individual loan segment. This segment has been witnessing good pick up in demand thanks to structural drivers like lowest interest rates in many years and Government initiatives to support housing sales. Demand for non individual loans continue to be strong, however company continues to be cautious due to developer related issues. We believe that, HDFC experienced management, strong underwriting practices and improving housing market are the key drivers for the good quality growth going forward. ROA (excl Gruh sale is ~1.8% for FY20) is expected to improve to 2.1% in FY23E. At CMP, HDFC core book trades at 1.8x/1.6x on FY22E/23E core ABV of Rs. 555/626 per share (net of investment in subsidiaries). We initiate coverage with a BUY rating for target price of Rs.3073 for 18-24 months.
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