Prabhudas Lilladher recommended accumulate rating on HDFC with a target price of Rs 2093 in its research report dated July 30, 2020.
Prabhudas Lilladher's research report on HDFC
Q1FY21 earnings reported 37%QoQ uptick largely led by stake sale gains of Rs12.4bn in HDFC Life during the quarter. PPoP too reported sequentially better 21% growth. YoY PAT de-grew by 5% as Co. made hefty Rs12bn provisioning led by COVID challenges. While current NPA position is masked by moratorium dispensation, overall morat loans declining to 22% from 27% in phase 1 is quite comforting. Moreover, individual loans morat 2 too declining to 17% from 23% earlier. As retail morat slippages are being tackled effectively, we maintain caution on developer/LRD businesses given macro headwinds. Said that, HDFC stands well positioned to tackle morat led slippages given elevated provisioning (47% ECL coverage), high liquid funds on BS (Rs308bn), healthy deposit amelioration (26%Yoy growth) and tier I of 16%. Q1FY21 also saw HDFC maintaining pricing power (exclusive of negative carry cost, NIMs stood steady at 3.3%) in the heated home loan market with rates revision. Besides, with sizeable capitalization backed by strong internal accruals, subsidiary stake sale gains and another Rs145bn capital raise approval in pipe-line, HDFC stands geared for both organic/inorganic growth opportunities once economy normalizes.
As subsidiaries contributing as high as 59% to SOTP, we also tweak holding company discount to 18% (earlier 15%) and rollover core book multiple to Sep-22 estimates at 1.6x arriving at SOTP price of Rs2,093.
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