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Assignments indicate healthy momentum; reports profit from 10% stake sale in HDFC Capital Advisors

Takeaways from HDFC’s pre-quarterly release

* HDFC Ltd. sold down loans worth INR95.3b in 1QFY23 v/s INR54.9b YoY and INR83.7b QoQ. We expect HDFC to report an upfront assignment income of INR4.5-4.7b from the sell-down. HDFC has sold ~INR325b worth of loans in the trailing 12 months (v/s ~INR231b in the previous year).

* Profit from the sale of 10% stake in HDFC Capital Advisors stood at INR1.84b in 1QFY23. In 1QFY22, HDFC had reported profits of INR2.63b from the entire stake sale in Good Host Space and part stake sale in HDFC Ergo.

* Under the Ind AS guidelines, employee stock options were fairly valued and charged to the P&L under employee expenses over a two-year vesting period. ESOP expenses have now declined to a quarterly run-rate of INR0.6- 0.7b and will continue over the next two quarters (almost half and much lower than the quarterly run-rate of INR1.2-1.4b earlier until 2QFY22).

* Dividend income stood at INR6.87b v/s INR164m in 1QFY22.

* HDFC is our preferred pick in the Housing Finance space. We like HDFC’s ability to gain profitable market share, despite significant competitive pressures. The real estate market continued its buoyancy in 1QFY23, and even non-Individual disbursements have started to pick-up and exhibit an improved momentum.

* The company has built a large provision buffer to safeguard against contingencies in NPLs and we expect a sequential decline in its credit costs in FY23. We expect HDFC to deliver a core RoE of ~14% in the medium term.

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