Buy HDFC Limited For Target Rs. 3,020 - Yes Securities
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Our view ‐ Best result (most resilient) in housing finance space
HDFC delivered a resilient performance on both growth and asset quality in the Individual Loans segment (78% of AUM), demonstrating its robust execution engine which is driving calibrated market share gains and a prudent underwriting framework that emits lower stress. By a good margin, HDFC has delivered a relatively stronger performance (v/s other HFCs as well as Banks) in individual mortgages segment by registering 2.5% qoq growth and limited increase in Stage‐3/PAR 30 portfolio of 40 bps/100 bps. Incremental restructuring too has been marginal (+ 15bps incl. all loans). With collection efficiency having reverted to pre‐Covid level in June itself, management expects significant reduction in credit cost over the medium term. Covid contingency buffer was augmented to 20 bps of AUM.
Individual Loan spread was maintained and NIM increased to 3.7%. Both NII and core PPOP grew by 23‐24% yoy, far higher than AUM growth of 8% yoy. Individual Loans’ growth accelerated to 14% yoy (12%/9% yoy in Q4/Q3 FY21) with disbursements at 2.8x yoy. Home loans disbursements in July were third highest ever in a month for the company, suggesting that growth momentum would further accelerate in the near term. Non‐Individual loan assets declined by 5% qoq on prepayments in LRD portfolio (from REIT issuance), tepid construction linked disbursements and settlement of some legacy loans. However, management is confident of delivering growth in this segment for the year.
We believe that company is well‐placed to benefit from a widely expected structural housing market recovery due to robust distribution and execution architecture (being bolstered by origination tie‐ups), high‐quality portfolio of individual loans, well‐ provided stress in non‐individual segment (32% provisioning on PAR 30) and robust capital position (Tier‐1 at 21.3%). We project core PPOP growth of 13‐14% over FY21‐24 with stable spreads (competition unlikely to impact in future too). The core mortgage business is available at 1.9x FY23 P/ABV. Maintain BUY and 12m PT of Rs3020.
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