HDFC - Strong trajectory in individual loans sustains - ICICIdirect

HDFC's Q2FY13 earnings of Rs.1151 crore, up 19% YoY was in-line with our estimates. Continuation of strong traction in loan book mainly from individual portfolio, flat spreads QoQ and steady asset quality were the key highlights of the results. The concerns that competition from PSU banks and other peers may curtail HDFC's loan growth have not yet been reflected. With PSU banks getting strong response after rate cuts and reduction in processing fees, the impact on HDFC's book is to be watch out for going forward. We maintain our estimates of 20% and 19% CAGR in loans and profits over FY12-14E. Maintain Hold.

Retail portfolio increases unabated, strong traction in other income

Loan book inclusive of loans sold rose sharply by 27% YoY, while net of loans sold the book grew by 22% to Rs.155128 crore mainly driven by individual loans which grew 24% YoY. Non individual book also witnessed a healthy increase of 19% YoY. In H1FY13, ~80% of the incremental growth has come from individual portfolio. Strong growth in other income (up 49% QoQ) was mainly due to dividend income (Rs.195 crore), trading gains (Rs.94 crore, up 3.6x QoQ) and surplus from CMS of Mutual funds which doubled QoQ to Rs.92 crore. Such rise in other income helped offset moderate traction in NII. Operating efficiency improved sequentially. Calculated NIM moderated slightly QoQ to 3.04% owing to 13 bps rise in cost of funds and 6 bps fall in yields. Asset quality remained steady QoQ with provisioning remaining adequate.

Strength in asset quality with profitability holds key

HDFC has maintained its guidance for loan growth at 18-20% in FY13. The company expects other metros such as Delhi NCR, Chennai and Tier II cities to be key growth areas. Adequate provisioning provides comfort against any adverse accretion in NPA. 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; maintain Hold rating but increase our TP

We upgrade our SOTP based target price by 10% to Rs.792 per share as we rollover to FY14. We have valued standalone lending business at 3.1x FY14E core ABV, giving Rs.513 per share of HDFC and SOTP target to Rs.792. We maintain our HOLD rating on the stock.

Source : Equity Bulls

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