HDFC - Superior execution and consistent performance - Motilal Oswal

Resilient on macros; return ratios to remain superior

- Housing Development Finance Corp (HDFC) has corrected by 23% and underperformed the Nifty by 11% since the Reserve Bank of India's (RBI) tightening of system-wide liquidity on July 15, 2013. This was on the back of rising investors' concerns over higher cost of funds (impacting spreads) and increasing stress in the real estate segment.

- In the current uncertain macro-economic conditions, HDFC is likely to be the most resilient in asset quality (cash flow-based lending, strong collateral in place etc) and growth (structural factors to aid).

- Subsidiaries/associates are self-funded and thus further dilution is not needed to take care of their capital requirements; strong internal accrual (core lending RoE of 26%+) will take care of HDFC's loan growth requirements.

- Based on assets and liability side flexibility, spreads shall remain in the range of 2.15-2.35%.

- Led by stable spreads, single digit cost to income ratio and superior asset quality, return ratios are expected to remain above industry average, with core RoA of ~2.5% and core lending RoE of ~26%.

Source : Equity Bulls

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