Buy HDFC; target of Rs 2056: ICICI Direct
ICICI Direct is bullish on HDFC has recommended Buy rating on the stock with a target price of Rs 2056 in its research report dated October 10, 2017.
ICICI Direct's research report on HDFC
HDFC Ltd is the first specialised housing finance company (HFC) and also the largest with an outstanding loan book of Rs 312978 crore. The conglomerate has a presence and superior position in growing financial business segments like insurance, both life and general, asset management and banking apart from its own core housing loan leadership business.
HDFC has commanded premium valuations over the years due to its consistent track record in earnings. Return ratios have remained healthy across economic cycles with RoE >20% & RoA ~2.2-2.3%. We expect PAT CAGR of ~11.9% in FY17-19E and loan CAGR of 16.2%. We value the standalone business at 3.5x ABV. Based on recent life insurance IPOs at 3.8-4.2x tailing EV, we upgrade HDFC life valuation to 3.6x forward EV (4.2x trailing). IPOs expected in asset management industry, lead to revised valuations for HDFC AMC business to 8% of AUM from 6% earlier. We revise our SOTP based target price higher to Rs 2056/share from Rs 1950. We reiterate our BUY recommendation on the stock.
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