Buy HDFC; target of Rs 3100: ICICI Direct

ICICI Direct's research report on HDFC

HDFC Ltd posted better-than-expected profitability on account of better than estimated topline growth. Pick-up in individual business and broadly stable asset quality were also a hallmark for the quarter. Overall asset quality performance was healthy as proforma GNPA was marginally up ~8 bps QoQ to 1.91%. Proforma GNPA in individual and non-individual book was at 0.98% and 4.35% vs. 0.88% and 4.19% QoQ, respectively. Collection efficiency in individual loans for December 2020 improved to 97.6% vs. 96.3% QoQ while overall collection efficiency remained at ~92%. The quantum of loans invoked and restructured under RBI’s resolution framework for Covid-19 related stress was at 0.9% of AUM (~Rs 5010 crore), of which ~26% came from individual segment. Of total restructuring, one large account contributed ~Rs 2600 crore (~0.5% of AUM). HDFC has made provisions worth Rs 594 crore during the quarter, including Covid provisions, thus taking cumulative Covid provisions to Rs 959 crore. Further accretion in restructuring could not be ruled out. However, provisioning buffer was at a healthy level of ~2.6% of advances vs. ~2.8% of stressed asset (1.91% proforma GNPA + 0.9% restructuring).

Outlook

we arrive at a TP of Rs 3100 (earlier Rs 2200), value core business at 2.6x FY23E ABV and subsidiaries at 15% holding company discount. We upgrade our rating from HOLD to BUY.