Neutral on HDFC - Motilal Oswal

• Mkt Cap USD19.1b
• CMP Rs3,047
• Neutral

HDFC's 1QFY11 PAT grew 23% YoY to Rs6.95b, marginally higher than our estimate of Rs6.84b. Net interest income (NII) was 3% higher than our estimate. While HDFC has not booked profit on sale of investments during the quarter (our estimate of Rs600m), dividend income was higher than we had estimated, as it accounted for dividend from HDFC Bank (Rs980m) in 1QFY11. In FY10, HDFC had accounted for dividend from HDFC Bank in 2Q.

- On a lower base, disbursements grew 25% YoY to Rs108.4b and sanctions grew 31% YoY to Rs160b. Reported loan growth improved to 17% YoY (4% QoQ) from 15% YoY a quarter ago and 13% YoY a year ago.

- Adjusted for cumulative sell-downs to HDFC Bank and others, YoY growth in loan book is healthy at 23%. During the quarter, the company sold Rs12.6b worth of loans.

- Core NII growth of 29% YoY is largely in line with our estimate (25% YoY). Reported spreads improved 15bp YoY to 2.34% due to re-pricing of high cost borrowings.

- Asset quality remains strong, with gross NPA of 0.89% on 90 days overdue basis and 0.54% on 180 days overdue basis.

Maintain Neutral, as valuations are rich: We expect EPS CAGR of 19% over FY10-12. We expect core RoE of 25-26% in FY11/12. The stock trades at 3.9x FY12E AP/ABV (price adjusted for value of key ventures and book value adjusted for investments in those ventures) and AP/E of 15x. Valuations are rich. Maintain Neutral.

Source : Equity Bulls

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