Accumulate HDFC; target of Rs 2270: Prabhudas Lilladher

Prabhudas Lilladher's research report on HDFC

HDFC's Q1FY20 earnings with PAT at Rs32bn up 46% YoY was largely supported by subsidiary stake sale gains (Rs18.9bn) and income on subsidiary investments. The quarter saw steady NIMS at 3.3% although non-individual spreads shrunk moderately. As corporate portfolio slackens, the overall loans stood sluggish at 13% YoY growth as against PL expectation of 15%; said that, individual loan traction stood upbeat at 17% YoY. While HDFC's credit risk profile stands robust, Q1FY20 saw moderate asset quality deterioration reflective of macro slowdown. GNPA at 1.29% stood higher than expectations of 1.2%, ECL provisioning climbed to 1.55% from 1.44% in Q4FY19. As macro headwinds play out, the margin-NPA maintenance conundrum has come to fore. While HDFC maintains competitive superiority the spreads should stand maintained, however, GNPA and loan traction (15%) should see slight downward pressures for FY20.

Outlook

Against this backdrop, we trim our core book multiple to 2.6x (earlier 2.7x) arriving at TP of Rs2,270 (earlier Rs 2,274) at Mar-21 PABV. Downgrade to ACCUMULATE.