HDFC Ltd - Individual loans drive growth... - ICICI Direct

HDFC maintained its healthy performance with Q1FY13 PAT up 19% YoY, which was largely in line with estimates. Traction in NII continued to be strong. Advances (net-of loans sold) growth was in line at 19.4% YoY primarily driven by strong traction in individual loans, thus shrugging off concerns of a slowdown in the individual loans category on account of competition and high interest rates. Reported spreads were stable sequentially. Cost-to-income came in higher compared to the last three quarters. GNPA increased QoQ but asset quality continues to be robust. We expect loans to grow at 20% and profits to witness CAGR of 19% over FY12-14E.

NIM moderates while asset quality remains stable in Q4FY12

NII rose 26% YoY to Rs.1258 crore mainly led by advances (net-of loans sold) growth of 19.4% to Rs.148262 crore. Advances inclusive of loan sold rose by 23% YoY with the individual loan book (including loans sold) increasing 29% (23% net of loans sold). Calculated NIM moderated QoQ to 3.1% (I-direct estimate at 3.2%) owing to a decline in yields (though aided by an increase in yields on conversion of the teaser loan portfolio into floating rates) and rise in cost of funds. Treasury gains were lower at Rs.20 crore vs. Rs.79 crore inQ4FY12. The cost-to-income ratio stood at 8.6% vs. 5.3% in Q4FY12. Provisioning increased 60% QoQ to Rs.40 crore owing to a slight deterioration in asset quality (GNPA ratio at 0.79% vs. 0.74% in Q4FY12). PAT came in at Rs.1001.9 crore.

Strength in asset quality with profitability holds key

HDFC expects to grow its loan book by 18-20% in FY13. The company expects other metros and Tier II cities to be key growth areas as Mumbai (12% of total) has already slowed down in FY12. Asset quality continues to be robust providing comfort on any spike in provisions. Consistent profits and healthy RoE and RoA of 22% and 2.7%, respectively, over FY12-14E remain key strengths of the company.

Rich valuations to stay

We have valued the standalone lending business at 3.1x FY13E core ABV giving Rs.464 per share of HDFC. We maintain our SOTP based target price of Rs.719 and our HOLD rating on the stock.

Source : Equity Bulls

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