Given HDFC’s solid fundamentals and favourable macro traits, we believe the company is well positioned for long term growth.
Housing Development Finance Corporation (HDFC) is the leading provider of Housing Finance in India with a gross loan book of Rs 4,00,000 crore and about 1.9 million deposits accounts.
During FY19, total loans increased 12 percent year-over-year (YoY) to Rs 406600 crore. The NII for FY19 stood at Rs 11,400 crore compared to Rs 9,600 crore 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 Housing Development Finance Corporation Limited(HDFC) with a buy rating and a target price of Rs 2,539 per share.Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.The Great Diwali Discount!
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