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Positive outlook over long-term

Housing Development Finance Corporation Limited provides housing finance to individuals and corporates in India. HDFC also provides construction finance to real estate developers and provides lease financing.

* NII grew moderately at 14.1% YoY with NIM of 2.9%.

* PAT jumped 42.4% due to lower provisioning (-43.5% YoY) and lower operating expenses.

* Deposits reached Rs. 150,131cr (+13.5%YoY) and Advances to Rs. 485,294cr (10.3% YoY).

* Robust pick-up in loan disbursement and healthy collection efficiency of 98%.The outlook over long-term remains positive on the back of welldiversified loan portfolio and adequate liquidity on hand. Hence we remain positive on the stock and maintain our rating to BUY with revised target price of Rs. 2,860 using SOTP Valuation

Stable interest spreads leads to NII growth

For Q4FY21, Net interest income registered a moderate growth of 14.1% YoY to Rs. 4,065cr due to marginal improvement in interest spreads to 2.29% (vs 2.27% in Q4FY20). Profit before provisions and merger effects rose to Rs. 4,532cr (14.4% YoY) for the quarter, aided by lower operating expenses (-11.9% YoY). Additionally, due to lower provisions (-43.6% YoY) of Rs.719cr, PAT jumped 42.4% YoY to Rs. 3,180cr. For FY21, reported NIM stood at 3.5% while Cost to income ratio subsequently lowered to 7.7% for FY2021 (vs. 9.0% for FY2020) due to reduction in non-discretionary spends.

Loan disbursements pick up pace, NPAs also on the rise

Loan book was Rs. 485,294cr with 13.2% YoY growth in individual loans and 3.8%YoY in corporate loans. On AUM basis, Loan book stood at Rs. 569,894cr with 92% of AUMs from individual loans. Average loan ticket size saw uptick to Rs. 314,000. Gross NonPerforming Loans (GNPL) rose to 1.98% (vs 1.67% in Q3FY21) with Individual NPL at 0.99% and non-individual at 4.77%. Ratio of expected credit loss to exposure at default remained stable at 2.62% (+6bps QoQ). CARR stood at 22.2% (vs. 20.9% in Q3FY21).

Key Highlights

* Total write-offs were Rs. 1,372cr for FY2021 while Rs. 4,479cr loan amount, which is 0.8% of the AUM has been restructured (of which 73% were from nonindividual loans).

* Actual provision carry was Rs. 13,025cr as against the Rs. 5,491cr required as per the regulation. COVID-related provisioning was Rs. 844cr as of 31st March ’21.

* Exposure at default for Stage-1, Stage-2 and Stage-3 were 91.4%, 6.3% and 2.3% respectively.

* Despite impacts of second wave of COVID, April 2021 loan disbursements have been higher than the total Q1FY20 loan disbursements.

Valuation

Though we’ve seen robust pick-up in the loan disbursement and healthy collection efficiency of 98%, we expect growth to decelerate near-term given the lockdown restriction in various states of India. However the outlook over long-term remains positive on the back of well-diversified loan portfolio and adequate liquidity on hand. Hence, we remain positive on the stock and maintain our rating to BUY with revised target price of Rs. 2,860 using SOTP Valuation.

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