IGI Logo

Improving business traction bodes well…

A healthy revival in credit offtake, especially individual segment thereby leading to improvement in operational performance remained a key highlight of the quarter. Asset quality remained broadly resilient. For Q4FY21, the company posted a healthy operational performance with NII growth of 10% YoY to | 3918 crore, driven by margin expansion and healthy AUM growth. Reported NIM was at 3.5%, up ~10 bps QoQ, YoY. Expansion in NIMs was aided by 8 bps sequential uptick in non-individual spreads.

Reducing levels of surplus liquidity also helped in NIM expansion. Other income growth came in at | 1224 crore, up 62% YoY. The sharp rise was partly on account of dividend income. The bank has made provisions worth | 719 crore during the quarter including Covid-19 provisions, taking cumulative Covid related provisions at | 844 crore. PAT for the quarter was at | 3180 crore; higher than our estimates.

Asset quality was largely steady on a proforma basis but reported GNPA showed 31 bps uptick to 1.98% as standstill asset classification norms are quashed. On a proforma basis, GNPA ratio was broadly stable at 1.98% vs. 1.91% QoQ. GNPA in individual and non-individual book were at 0.99% and 4.77% versus proforma levels of 0.98% and 4.35% QoQ, respectively. Collection efficiency in individual loans improved to 98% vs. 97.6% in the previous quarter. The quantum of loans restructured under RBI’s resolution framework for Covid-19 related stress was at 0.8% of AUM, of which 27% are individual loans while 73% come from non-individual book.

One large single account under resolution framework amounted to 0.5% of AUM. Provisioning buffer was at a healthy ~2.62% of advances vs. ~2.8% of stressed asset (1.98% proforma GNPA + 0.8% restructuring). AUM growth trajectory improved to 10.3% YoY and 3.2% QoQ to | 569894 crore. Healthy AUM growth was driven by 13.2% growth in individual portfolio led by strong demand for home amid lower interest rates, softer property prices and concessional stamp duty in certain states.

Among nonindividual book, corporate segment (comprising 6% of AUM) and LRD (7% of AUM) witnessed a pick-up in Q4FY21, after a dip in 9MFY21. However, the company remained cautious on construction finance segment (10% of AUM) and continued to gradually de-grow the book in the last fiscal. Affordable segment continued to stay in focus with 33% by volume, 16% by value disbursements. After adding back loans sold, growth in individual book was at 19% YoY while growth in total loan book was at 15% YoY.

Valuation & Outlook

Robust pick up in individual disbursement at 60%, margin expansion of ~10 bps and collection efficiency at 98% reflect healthy revival in individual business which comprises ~74% of gross loan book. We remain positive on earnings visibility given 1) business growth led by market leadership, 2) adequate capital of 22.2%, 3) funding advantage and 4) healthy provision buffer. Healthy performance in subsidiaries would aid consolidated earnings. Stake sale in HDFC Ergo (to reduce stake as per regulatory regime) could lead to one off inflows. We expect earnings to grow at 14.6% CAGR in FY21-23E with healthy RoA at ~2.2% in FY23E. We maintain our target price at | 3100, valuing core business at 2.5x FY23E ABV and subsidiaries at 15% holding company discount. We maintain BUY

To Read Complete Report & Disclaimer Click Here

https://secure.icicidirect.com/Content/StaticData/Disclaimer.html

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