Accumulate HDFC; target Rs 725: Prabhudas Lilladher

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Accumulate HDFC; target Rs 725: Prabhudas Lilladher

Prabhudas Lilladher is bullish on HDFC has recommended accumulate rating on the stock with a target price of Rs 725 in its January 12, 2012 research report.

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Prabhudas Lilladher is bullish on HDFC has recommended accumulate rating on the stock with a target price of Rs 725 in its January 12, 2012 research report.

"HDFC's Q2FY12 PAT of Rs 9.8bn was in line with our estimates. Reported PAT growth of 10% YoY was lower than the historic trend of ~20% YoY growth, mainly due to one - off investment gain booked in Q3FY11, adjusted for which PAT growth was ~20% YoY. Q3FY12 was another steady quarter, with stable asset quality, robust credit growth and funding flexibility aiding margins. HDFC offers stable growth with low asset quality risks."

"Loan book grew by ~21% YoY, with ~18-19% growth in overall approvals and disbursements was better than <15% YoY growth in banks mortgage book. Volumes have been low in Mumbai; however, management is seeing robust volumes from Tier-2 & 4 cities, aiding credit growth. HDFC's reliance on bank funding has come off from a high of ~36.5% in March 2011 to <20% in just nine months, with bank's rate remaining higher than AAA corporate borrowing rates. This displays HDFC's ability to significantly change liability profile to maintain spreads. Overall spreads did contract in Q3FY12 v/s Q2FY12, mainly due to Rs 1.0bn P&L charge relating to cross-currency swaps that required recognising losses on FX exposure, without considering the interest rate differential."

"HDFC disclosed that they have Rs 4.2bn of notional MTM hit that need to be amortized over next 7-8yrs (assuming USD/INR at 53). These notional losses do not factor in ~5% annual rate benefit on FX borrowing (for 7-8 yrs) and possible reversals if rupee appreciates. In terms of economic value, the swap would be value destructive only if USD/INR deprecation is sharp enough to cumulatively net off 5% annual rate benefit over 7-8yrs (not the case now). With limited upside to our September 2011 price target, we maintain 'Accumulate' on the stock (target Rs 725)," says Prabhudas Lilladher research report.

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