Accumulate Infosys, hold HDFC: Emkay

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Accumulate Infosys, hold HDFC: Emkay

Emkay Global Financial Services has come out with its report on Infosys and HDFC.

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RELATED NEWS Accumulate HDFC; target Rs 725: Prabhudas Lilladher Buy Infosys; target Rs 3450: Arihant capital markets Hold Infosys; target Rs 2945: R K Global ALSO READ See previous views by Emkay Global Financial Services See what other Experts & Brokerages are saying about Infosys See messages about Infosys Infosys BSE | NSE 30/05/12 Are Mutual Funds betting on Infosys? Other Stocks in this news Housing Development Finance Corporation |

Emkay Global Financial Services has come out with its report on Infosys and HDFC .

Infosys:

Infosys reported an inline Dec'11 qtr results with revenues at US$ 1,806 mn (+3.4% QoQ, +4.4% QoQ in constant currency terms with ~100 bps cross currency hit) while op margins expanded by ~260 bps sequentially to 33.7% aided by ~11% currency depreciation. Profits at Rs 23.7 bn (+24% QoQ) came in line with expectations. While revenues from Europe grew strongly by ~13.7% QoQ (16.8% QoQ in constant currency terms), revenues from North America were up by 0.9% QoQ.

We cut our FY13/14E revenues moderately (we now build in a 13%/15.8% US$ revenue growth V/s 14.3%/16.6% earlier) which drive a 2.5%/2% cut in our FY13/14E earnings to ~Rs 165/182. We would advise investors to add positions in the stock on any further weakness in the stock price given attractive valuations at ~15.7x/14.2x FY13/14E P/E. ACCUMULATE, TP Rs 2,850 (V/s Rs 2,900 earlier).

HDFC:

HDFC Q3FY12 NII at Rs11.6bn (up 12.5% yoy) was largely inline with our / street estimates. NII growth during the quarter was aided by healthy loan growth across all segments and substantial shift in borrowing mix. Resultant, calculated NIM at 3% were flat sequentially. The reported NIM / spreads for M9FY12 stood at 4.3%/2.27% respectively. However, despite 19% yoy growth in operating profit, lower investment / gains on sale of investments attributed for mere 10% yoy growth in APAT. Including investment gains in corresponding period of previous year, net profit was actually up 19% yoy. HDFC carries a cumulative provision of Rs15.8bn (1.2% of total loans) significantly above the regulatory requirement. On the balance sheet front, loan growth came in at 21.2% yoy (4.1% qoq). This growth has clearly shrugged off concerns over material slowdown in loan growth due to interest rates or property prices. Also with repayment ratio at sub-10%, fears over pre-payment remains miniscule. For M9FY12 sanctions / disbursements were up 19% each. Over FY11-13E, we expect HDFC to report 18% CAGR in loan portfolio aided by 17%+ CAGR in sanctions / disbursements each.

HDFC has exhibited resilience given its ability to deliver a) strong loan growth b) stable asset quality and c) superior return ratios. Q3 results clearly shrugged-off concerns over any material slowdown in loan growth due to higher interest rates and elevated property prices. Also with repayment ratio at sub-10%, concerns over pre-payment remain miniscule. We expect the mortgage giant to report steady 18% CAGR in loan portfolio over FY11-13E. Even after factoring margin compression and 6bps of credit cost, we expect RoA/RoE to average 2.5%/21% over FY11-13E. Maintain HOLD with target price of Rs700.

Institutional holding more than 40% in Indian cos

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To read the full report click on the attachment