HDFC - 3QFY13 Results Update - Motilal Oswal

HDFC reported PAT of INR11.4b for 3QFY13, in line with our estimate. While core operating performance was better than expected (NII 5% higher than our estimate), lower than estimated trading profits and dividend income led to marginal deviation in profitability. Key highlights:

- AUM grew 21.5% YoY and 3.6% QoQ to INR1.77t. Corporate loans were flat QoQ; the entire quarterly increase in AUM came from retail (individual) loans. The AUM mix remains skewed in favor of retail loans, which constituted 69% of AUM (v/s 67% a quarter ago).

- Muted corporate loan growth (+7% YoY in 9MFY13 v/s 19% retail and 14% overall) not only impacted disbursement growth (+10% YoY in 9MFY13) but also fee income growth (down 25% YoY in 9MFY13).

- Reported overall spread was largely stable (9M v/s 1H) at 2.28%, with individual spread at 1.95% (1.96% in 1H) and corporate spread at 2.79% (2.72% in 1H).

- GNPA on 90-day overdue basis declined to 75bp from 77bp QoQ. Segmentwise, GNPA was 62bp (65bp a quarter ago) in the individual segment and 91bp (89bp a quarter ago) in the corporate segment.

- Other highlights: (1) In 3QFY13, HDFC routed interest on zero coupon NCDs through reserves to the tune of INR870m v/s INR1.2b in 2QFY13, and (2) Outstanding provisions including standard asset provisions stood at INR17.8b (110bp of outstanding loans) at the end of 3QFY13.

Valuation and view: We believe valuations are reasonable, considering HDFC's growth potential, sound business fundamentals, and substantially improved subsidiaries' performance (Life Insurance has turned profitable). Maintain Buy with an SOTP-based target price of INR919.

Source : Equity Bulls

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