Anand Rathi
Housing Development Finance Corporation (HDFC) is the leading provider of Housing Finance in India with a gross loan book of Rs 4 trillion and about 1.9 million deposits accounts.
During FY19, total loans increased 12 percent year-over-year (YoY) to Rs 4,066 billion. The NII for FY19 stood at Rs 114 billion compared to Rs 96 billion in the previous year, reflecting a growth of 18 percent. Reflecting efficiency, the company’s cost to income ratio stood at 8.5 percent at the end of FY19 down from 9.2 percent in the previous year.
HDFC will continue to benefit from its strong market position, continued growth in loans, healthy asset quality and stable spreads. Also, the company remains focused on marketing, distribution and digitization in order to expand reach and boost operational efficiency.
In terms of macro scenario, the domestic mortgage has plenty upside with low penetration levels. Housing loans as a percentage of nominal GDP in India has remained quite low at around 11 percent which is significantly lower than the levels achieved in most of the developed countries (Thailand-20 percent, China-26 percent, USA-50 percent and UK- 66 percent). Favourable government policies and initiatives focused on affordable housing creates impetus in the housing sector.
Further, rapid urbanization, emergence of nuclear families, young Indian population, increasing disposable income and improving afford ability will continue to be the demand drivers in the sector.
Given HDFC’s solid fundamentals and favourable macro traits, we believe the company is well positioned for long term growth and initiate our coverage on HDFC with a BUY rating and a target price of Rs 2,539 per share.
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