Buy HDFC; target of Rs 783: KRChoksey

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Buy HDFC; target of Rs 783: KRChoksey

KRChoksey is bullish on HDFC and has recommended buy rating on the stock with a target of Rs 783 in its January 13, 2012 research report.

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KRChoksey is bullish on HDFC and has recommended buy rating on the stock with a target of Rs 783 in its January 13, 2012 research report.

"HDFC reported PAT of Rs981 crore growing by 10.2% y-o-y & 1.1% q-o-q in line with our expectation. Core PAT (excluding capital gains) increased 19.3% y-o-y driven by NII growth 15.1% y-o-y and marginal decline in tax rate. NII grew by 15.1% y-o-y to Rs 1,236crore led by healthy loan (including loan sold) growth 25.1% y-o-y. Calculated spreads declined 21bps q-o-q due to increase in cost of funds faster than asset yields. Loan book excluding loan sold grew by 4.1% q-o-q led by 5% q-o-q growth in retail loan book. On YTD basis, Approvals and disbursements growth were 19% each reflecting moderation in loan demand due to rising interest rate environment and higher real estate prices. Unrealized gains declined 10% q-o-q to Rs130 per share owing to sharp correction in equity market."

"NII grew 15.1% y-o-y & flat q-o-q to Rs 1,236 crore lower than our estimates. Calculated spreads declined 21bps q-o-q owing to increase in cost of funds faster than asset yields. The reported spread pegged at 2.27% flat on q-o-q basis. Loan book incl. sell- downs grew by 25.1% y-o-y to Rs 1, 36,429crore. We believe HDFC continues to maintain spread in the range of 2.2% -2.3%, going forward. We model in 19.6% CAGR in loan book over FY11-13 driven by retail and wholesale business. Loan book adjusting for sell downs grew by 25.1% y-o-y to Rs 1,36,429 crore while growth excl. sold loans pegged at 21.2% y-o-y to Rs 1,32,208 crore. Retail loan largely contributed to loan book growth during the quarter. Retail loans mix increased from 63% in Q2FY12 to 64% in Q3FY12. Corporate loan mix stood at 36% at end of Q3FY12."

"HDFC has delivered another consistent core operating performance during the quarter. Business growth continued to be in line with management's guidance while asset quality remains best in class. We expect HDFC to deliver 21.3% CAGR in core earnings on the back of strong loan growth, stable margin and steady credit cost over FY11-FY13. Market leadership in housing finance sector, superior underwriting standards, stable spreads, well diversified borrowing profile and unlocking value of subsidiaries are key value drivers for the stock. At Rs 688, the stock is trading at 4.4x FY13 book value and 20.1x FY13 earnings. RoA and RoE continue to remain at superior levels ~ 2.8% and 23.6% respectively in FY13.We have revised our earnings estimate downward by 3.0% and 1.0% for FY12 & FY13 respectively factoring softness in loan growth and marginal cut in spreads."

"We believe wholesale funded entities would see cyclical gains in term of lower cost of funds, better growth prospects and re-rating in valuation multiple in rate easing cycle. The stock has outperformed the market by 8.5% in last three months, reflecting resilient core earnings in tough macro environment. Hence, we maintain BUY rating on the stock with revised target price of Rs 783," says KRChoksey research report. 

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