Buy HDFC, tgt Rs 3324: Edelweiss

Edelweiss reearch has maintained buy rating on HDFC with target price of Rs 3324 in its April 30, 2008 research report. "Housing Development Finance Corporation (HDFC) is on a roll reporting better-thanexpected performance on the core business in Q4FY08 with improvement in market share and better margins. Net interest income grew by 68% Y-o-Y to Rs 8.8 billion with 50bps improvement in spread and 29% Y-o-Y growth in loan book. It booked profit of Rs 2.0 billion in Q4FY08 from sale of investments in general Insurance business to Ergo. Profit (before tax and excluding profit on sale of investments) grew by 62% Y-o-Y to Rs 10.9 billion"

" Defying all speculations regarding MTM losses on forex derivative exposure, HDFC has MTM profit of Rs 2.9 billion on its derivatives exposures, but it is not recognised it in the P&L statement. From our interaction with the management, we infer that the bank’s foreign exchange transactions carry no risk of MTM losses. Currently, it has cross currency exposure of USD 650 million, but it carries a downward protection through options. After adjusting for value of investments, the stock is trading at 3.6x FY10E book and 16x FY10E earnings. We are revising the value of HDFC’s investments to INR 989 per share, toning down our growth estimates for life insurance and asset management businesses. On sum-of-the-parts (SOTP) basis, the stock is valued at Rs 3,324 per share in FY10E. We maintain ‘BUY’" says Edelweiss report.