IGI Logo

Healthy growth on stable asset quality

* HDFC Ltd. managed to maintain healthy growth momentum of ~16% yoy on an improvement in housing demand (~91% disbursements for new homes) across geographies. Adjusting for loans sold to HDFC Bank, AUM grew ~9.3% yoy to Rs5.52tn. The company assigned loans of Rs70.8bn to HDFC Bank vs. Rs42.6bn last year.

* NIMs remained stable at ~3.4% in Q3, supported by steady overall spreads of ~228bps (flat sequentially). The company manages spreads on individual loans at ~194bps while on non-individual book at ~314bps. Operational performance remained healthy with an improvement in cost-to-income ratio at ~8.1% vs. ~9.6% last year.

* Gross NPAs (without asset standstill) stood at ~1.91% of the loan portfolio (individual loans at 0.98% and non-individual at ~4.35%). Restructured loans stood at 0.9% of loans. Sharp rise in Stage-2 assets (~46% qoq) to Rs342.1bn remains a concern but management indicated it as a technical issue (OTR related, etc.) and the resolution of it as likely.

* HDFC remains our top pick considering the surge in housing demand and its ability to manage market share, superior liability franchise and healthy provision cover. We raise FY22/23E EPS by ~15%. Retain Buy (OW in EAP) with a revised TP of Rs3,020, ~2.1x P/B Mar’23E (standalone)

What we like about HDFC results

* We believe that HDFC is able to gain market share, especially from other HFCs and even smaller banks due to its superior liability franchise providing it an advantage on the cost of fund front.

* NIM witnessed a sequential improvement at 3.4% from 3.3% during last quarter as the company has gradually unwound its high liquidity levels seen in the previous quarter.

* The company continues to maintain heavy provision buffer with overall provisions available in balance sheet of Rs123.4bn against provision requirement of Rs65.8bn. The provisions carried as a percentage of the Exposure at Default (EAD) is equivalent to 2.56%.

Where we remain concerned

* Our market share analysis suggests consistent market share loss by HFCs to Banks which we expect to intensify further. Though HDFC Ltd still managed to hold its position due to superior reach and best-in-class liability franchise, in the housing segment competitive pressure is imminent.

* The sharp shift in Stage-2 assets to Stage-3 assets would be a concern; however, the high provision buffer provides comfort.

To Read Complete Report & Disclaimer Click Here

For More  Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354

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