Maintain Neutral on HDFC - Motilal Oswal

(HDFC IN; Mkt Cap USD20.8b, CMP Rs642, Neutral)

In 3QFY11 disbursements grew 21% YoY to Rs135b and sanctions grew ~29% YoY to Rs164b. For 9MFY11, disbursements were up 25% YoY.

Loan grew 21% YoY (up 2.6% QoQ). Adjusted for cumulative sell-downs over the past 12 months (Rs53.9b), AUM grew 22% YoY.

In 3QFY11, core NII growth was 20% YoY, marginally lower than our estimates of 24%. Reported spreads (cumulative) were sequentially stable at 2.33%.

HDFC booked gains of Rs1.7b due to IL&FS stake sale, which is taxed at ~20%. The asset quality remains strong with gross NPA of 0.85% on 90 days overdue basis and 0.54% on 180 days overdue basis. Made new provisioning of Rs4.2b.

Motilal Oswal expects HDFC to report EPS of Rs23.4 in FY11 and Rs28 in FY12, translating into FY10-12 EPS CAGR of ~19%. We expect core RoE to improve to 25-26% by FY11/12. The stock trades at 4x FY12E adjusted price/ABV (price adjusted for value of key ventures and book value adjusted for investment in those ventures) and adjusted P/E of 15.6x. Valuations are rich, reflecting strong growth prospects. Maintain Neutral with an SOTP target price of Rs702.

Source : Equity Bulls

Keywords