HDFC - Another consistent quarter - Edelweiss

HDFC reported consistent earnings growth of 19% YoY to INR10bn, in line with expectations. Although core NII grew 26% YoY, it was offset by lower surplus from investment in mutual funds (off 52% YoY). Individual loan growth of 23% YoY (no sell downs to HDFC Bank in Q1FY13) led 19% advance growth. Dividend income came in higher than expectations due to dividend from HDFC Investments (dividend not yet accrued on HDFC Bank investment). We maintain 'HOLD' with TP of INR676.

Loan growth led by individual segment

Loan book grew 19% YoY and 5% QoQ, to INR1.48tn, led by individual loan book growth of 23% YoY (7% QoQ). The proportion of individual loans improved 140bps to 64.4%. There was no sell down to HDFC Bank in Q1FY13 (similar to trend in Q1FY12), but management continues with its guidance of sell downs of ~INR50bn in full year FY13. After adjusting for sell downs in FY12, individual loan book grew 29%. We maintain our loan growth estimate of 20% CAGR over FY12-14E.

NPLs rose marginally in Q1 following historical trend

- Gross NPLs, following historical trend, inched up in Q1FY13 to 0.79% (by INR1.2bn, to INR11.9bn). While the individual loan book has shown consistent decline in NPLs, from 1.06% in FY08 to 0.55% in FY12, gross NPLs in the non-inidivudal segment have more than doubled to 1.55% (from 0.84% in FY11).

- On incremental loans, the company provided for 40bps standard asset provisioning by taking a hit on P&L. Provisioning was higher in Q1FY13 at INR400mn, of which, INR280mn is likely towards standard asset provisioning.

Outlook and valuations: Consistent core; maintain 'HOLD'

HDFC's performance reinforces our expectation of 20% loan growth, stable margins (at 3.5%) and insignificant stress on asset quality. We are now routing standard asset provisioning through P&L against earlier practice of utilizing excess reserves, thereby revising earning estimates marginally downward but no revision in book value. We expect 19% earnings CAGR and RoE of 22-23% over FY12-14. However, due to utilization of excess reserves towards interest on zero coupon bonds, book value accretion will be 19%. Our SOTP fair value is INR676/ share (FY13E) (valuing the core book at 4.2x and investments at INR223). We maintain 'HOLD/ Sector Performer'.

Source : Equity Bulls

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