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Steady operations; business to pick up from here on…

About the stock: HDFC Ltd is the largest NBFC engaged in housing finance business. It has demonstrated a consistent performance in terms of both business growth as well as asset quality.

* Individual loans contribute ~78% of AUM

* Stake in subsidiaries in insurance and asset management business aid value.

Q1FY22 Results: HDFC Ltd reported a steady performance amid the second wave.

* Moderation in advances growth at 7.5% YoY; individual book up 14.5% YoY

* NII up 22% YoY; margin up ~20 bps QoQ, 60 bps YoY

* GNPA up 26 bps QoQ to 2.24%; individual GNPA up 38 bps at 1.37%.

What should investors do?

HDFC Ltd’s share price has grown ~80% over the past five years. Market leadership, funding advantage and adequate capital lead us to remain positive on fundamentals.

* We retain our BUY rating on the stock.

Target Price and Valuation: We value HDFC Ltd at ~2.4x FY23E core ABV and | 1499 for subsidiaries to arrive at a target price of | 3100 per share.

Key triggers for future price performance:

* Anticipated pick up in business growth led by market leadership

* Funding advantage and adequate capital to aid growth & earnings

* Healthy provision buffer & improvement in collection to aid asset quality.

Alternate Stock Idea: Apart from HDFC Ltd, in our coverage we also like Axis Bank.

* Strong liabilities franchise, adequate capitalisation and healthy provision buffer to aid business growth as well as earnings trajectory

* BUY with a target price of | 900

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