HDFC - 1QFY13 Results Update - Motilal Oswal

HDFC reported PAT at INR10b (in line with our estimates). Business growth remained healthy (loans and AUM up 19% YoY), while spreads and asset quality remained stable.

Key highlights:

- NII growth tracks AUM growth: Net interest income (NII) grew 19% YoY to INR13b in line with AUM growth. Net loans and AUMs grew 19% YoY to INR1.48t and INR1.62t respectively. Reported spreads remained stable QoQ at 2.27%, while reported NIM declined to 4.0% from 4.4% in FY12.

- Healthy traction in individual loans continues: Individual loans (including sell-downs) grew at a healthy pace by 22% YoY, while corporate loans grew 14% YoY. Incrementally, 90% of the loan growth was driven by individual loans. Share of individual loans in the overall AUM mix increased to 67.4% from 66.5% in 4QFY12.

- Fee income growth remains muted: Fee income growth was muted, up 8% YoY and 3% QoQ. Profit on sale of investments stood at INR202m v/s INR163m YoY and INR791m QoQ.

- Asset quality stable: GNPA % on 90-day overdue basis increased to 0.79% from 0.74% in 4QFY12. Sequential increase in gross NPAs (up 12% QoQ) is largely seasonal in nature.

- Other details: (1) During the quarter, HDFC routed interest on zero coupon NCDs through reserves to the tune of INR1.49b, (2) CAR stood at 14.6% with tier I ratio of 11.8%, (3) As on Jun-12, 16% of warrants have been converted into equity shares (the warrants are due for conversion by Aug-12).

Valuation and view: Stock trades at 3.5x FY14E Adj Price/ABV. We believe valuations are reasonable, considering HDFC's growth potential (FY12-14E EPS CAGR of ~20%), sound business fundamentals, and substantially improved subsidiaries' performance (life insurance business has turned profitable and unlikely to require further capital infusion). We maintain Buy with an SOTP target price of INR800.

Source : Equity Bulls

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