IGI Logo

Another good quarter

HDFC’s Q3 FY23 performance was largely in-line with expectations with a mild miss on core PPOP offset by lower credit cost. Softer-than-expected core PPOP growth (3.8% qoq/10.6% yoy) was caused by a deceleration in AUM growth (1.6% qoq/13% yoy) even as NIM/Spread performance was slightly better (cumulative NIM improved). On asset quality front, reduction in Stage-2 and Stage-3 continued and the coverage was enhanced again

HL growth decelerates and non-IL book declines

Annual growth in Individual Loans (IL) moderated to 17.6% yoy from 20% yoy as of the preceding quarter with the disbursements being 9-10% lower qoq. Higher holidays impacted originations in October and November; however, December has witnessed a return to normal trajectory. Management does not expect any durable impact on home loan demand/growth from recent rate hikes. Annualized pre-payment rate stayed put around 10%, in-line with historical trends. While growth is pervasive across locations and customer segments, the share of HIG customers and Metros/Tier-1 locations has been rising. The non-IL portfolio declined by 3.5% qoq with a sharp reduction in LRD book. The construction finance portfolio witnessed substantial growth and HDFC has a reasonably good pipeline here. Scheduled repayments, resolution of some stressed assets and winding down of certain non-compliant loans for commercial banking has been impacting the growth of non-IL portfolio over the past few quarters

NIM has stabilized; Asset quality and coverage improves further

NII growth was healthy at 13% yoy and depicted material recovery from 8% yoy growth in Q1 FY23. The lagged assets re-pricing is coming into play even as CoF continues to rise. Management had earlier guided that NII growth will catch-up with loan book growth in coming quarters. Notably, the trend in NIM/NII growth needs to be looked in the context of growth composition (AUM share of relatively lower margin/spread ILs has risen to 82% from 79% over past 12m). While announcing timely lending rate hikes, the co. also shifted to monthly reset for incremental loans from July. HDFC’s Stage-2 and Stage-3 assets declined by 3.5-4% qoq on account of strong collections/resolutions. Reduction in OD buckets and NPLs were seen in both IL and non-IL portfolios. Gross NPLs in IL/Non-IL book stood at 0.86%/3.9% as against 0.9%/4% as of preceding quarter. The credit cost moderated to annualized 22 bps, and mainly reflected provisions related to coverage augmentation (Stage-2/Stage-3 ECL improved by 1.5%/0.6%). Loan write-offs were significantly lower at 4-5 bps

We retain BUY on HDFC basis stand-alone view on the franchise. See 14-15% CAGR in loan portfolio and core PPOP over FY22-25. The core mortgage business is available at 1.8x FY24 P/ABV. We continue to believe that merger is beneficial for HDFC’s shareholders as it transitions investors’ holding into a diversified and strengthened combined entity.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632

Above views are of the author and not of the website kindly read disclaimer