HDFC - Strong asset growth; maintain BUY - Religare

HDFC reported strong business growth in Q2FY13 with the individual loan book expanding 23% (adj. for sell-down) despite increasing competitive intensity. While NII growth was below estimates at 12%, strong other income led to a 17% growth in net revenues. The interest spread remained stable QoQ at 2.7%. Asset quality was healthy with GNPLs at 0.77% (0.82% in Q2FY12). We remain positive on HDFC given its high earnings visibility and stable asset quality, and roll over to a Sep'13 PT of Rs 825/share.

- Business growth strong, spreads stable: Advances growth of 22% YoY was driven by the retail segment (up 23.8% YoY). The corporate loan book growth also improved from 14% YoY in Q1FY13 to 19% in Q2FY13 (up 5.4% QoQ). Including loans sold, overall loan book/retail book grew 21.9% YoY/ 23.2% YoY. While spreads were stable at 2.27%, NIMs improved 30bps-40bps QoQ. HDFC raised money through bonds and deposits in Q2FY13, while bank loans declined by 47% QoQ (Fig 4). Net worth increased from Rs 205bn to Rs 244bn due to warrant conversion.

- Asset quality firm; fee income growth muted: GNPLs declined from 0.82% in Sep'11 and 0.79% in Jun'12 to 0.77% in Sep'12. Total provisions remained stable at Rs 400mn. Outstanding provisions stood at Rs 17.5bn, of which Rs 4.9bn were NPL-related. Other income growth was strong at 49% YoY driven by a 200+% growth in dividends (Fig 2); however, fee income and other charges declined by 28% YoY. The C/I ratio was largely stable YoY at 8.5%.

- Maintain BUY on high earnings visibility: We remain positive on the housing finance segment and expect HDFC to report strong advances and earnings growth of ~20% CAGR over FY12-FY15. The stock is trading at 13x FY14 EPS and 3.6x FY14 BV (after adjusting for subsidiaries). In our view, valuations are reasonable given HDFC's leadership position in the housing finance segment, strong visibility to earnings and high core ROEs of ~30%.

Source : Equity Bulls

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