Shares of Housing Development Finance Corporation (HDFC) gained nearly a percent intraday on January 1 after Sharekhan maintained its bullish view on the stock and sees 16 percent potential upside from current levels by end of 2020.
"HDFC is currently available at around 4.2x its FY22E BV, which we believe is reasonable considering its robust operating metrics, pedigree, strong brand recall across product categories and sustainable business model," said the brokerage.
Even as the NBFC industry faces its own challenges, the consistency and relative outperformance of HDFC will help it to sustain growth as well as its valuations, it added.
Sharekhan said balance sheet strength (low NPLs and high provision buffer), consistency and quality of earnings continued to be the key differentiators for HDFC.
The housing finance company (HFC) is well capitalised (Tier 1 at 18.1 percent), helped by capital infusions as well as subsidiary monetisation and internal accruals – which are strong long term growth engines, it added.
While over the past few quarters, HDFC has maintained a cautious stance on the wholesale segment's growth, the brokerage believes provision buffers and buoyant subsidiary valuations are supportive of valuations.
It further believes improvement in growth rates and return in equity (ROEs) (led by sustained growth in retail lending and relatively strong developer loan book of HDFC) augur well.
Sharekhan expects AUM growth to remain healthy (on market share gains) with spreads maintained and well-contained credit costs.
Hence, the brokerage maintained its buy rating on the stock with a revised price target of Rs 2,800 per share.
Global brokerage Citi also maintained buy call on the stock and increased its target price to Rs 2,960 (from Rs 2,750 earlier), implying 22.6 percent potential upside.
"We value HDFC at 3.3x Mar-21E P/adjusted BVPS and increased target price for HDFC AMC and other subsidiary," the research house said, adding core mortgage business will continue to do well.
The stock gained more than 22 percent in last three months. It was quoting at Rs 2,422, up Rs 8.55, or 0.35 percent on the BSE at 1135 hours IST.Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.