Angel Broking neutral on HDFC

Angel Broking has maintained neutral rating on Housing Development Finance Corporation (HDFC) in its January 21, 2013 research report.
 
“HDFC’s standalone net earnings grew by 16.2% yoy to Rs1,140cr for 3QFY2013, slightly below our estimates, on back of lower-than-estimated growth on the operating income front. Stability witnessed on the spreads as well as on the asset quality front, was the key positive takeaway from the results.”
 
“During 3QFY2013, HDFC’s loan book grew by a healthy 21.7% yoy, with loans to the individual segment growing by 24.8% yoy. HDFC has been incrementally growing its individual loan book, much faster than its corporate loan book over the last nine months, in order to improve its margins and non-interest income such as processing fees. Including loans sold, around 85% of the loans over the last nine months have been disbursed to the individual segment. The asset quality continued to be strong with the gross NPA ratio at 0.75%, lower than the 0.82% reported in 3QFY2012 and 0.77% in 2QFY2013. As of 3QFY2013, HDFC continues to maintain a 100% PCR. Its NII rose by a healthy 18.8% yoy to Rs1,624cr. The spread on loans over the cost of borrowings stood at 2.28% for 9MFY2013 compared to 2.27% for 9MFY2012. The net interest margin stood at 4.1% for 9MFY2013. Going ahead, NIMs are likely to face modest pressure; on back of higher incremental lending to individuals (individual loans have lower spread compared to non-individual loans). However, with loan book growing at above industry CAGR of 21% over FY2012-14E, we expect the company to sustain a healthy NII CAGR of 18.7% over the same period. For 3QFY2013, profits on sale of investments were higher by 9.5% yoy at Rs96cr. Other income was higher by 63.5% yoy at Rs8cr.”
 
“At the current market price, HDFC’s core business (after adjusting Rs259/share towards the value of its subsidiaries) is trading at 4.6x FY2014E ABV of Rs124.1 (including subsidiaries, the stock is trading at 4.5x FY2014E ABV of Rs177.6). We expect HDFC to post a healthy PAT CAGR of 17.8% over FY2012–14E. However, considering that the stock is currently trading at 4.8x one-year forward P/ABV and at a 49.8% premium to the Sensex in P/E terms (compared to an average of 39.0% since FY2006), we consider the stock to be fairly valued and hence, recommend Neutral on the stock,” says Angel Broking research report.

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