Accumulate HDFC; target Rs 867: Angel Broking

Angel Broking's report on HDFC

For 1QFY2014, HDFC's loan book grew by a healthy 19.4 percent yoy, with loans to the individual segment growing by 31 percent yoy (after adding back sold loans) and 24 percent (excluding sold back). HDFC has been incrementally growing its individual loan book, much faster than its corporate loan book, over the past one year. During the quarter, incremental growth in the loan book (including loan sold) came entirely through growth in individual loans, which now constitute 67 percent of the total loan book.

The spreads stood largely stable at 2.29 percent for 1QFY2014 as compared to 2.30 percent for the entire FY2013, while the reported NIM came in at 3.9 percent as compared to 4.2 percent for the entire FY2013 and 4.0 percent for 1QFY2013. Asset quality continues to remain strong for the company, as its gross NPA ratio came in at 0.77 percent, as against 0.74 percent reported in 4QFY2013 and 0.75 percent in 3QFY2013. The company continues to maintain a 100 percent PCR. Going ahead the NIM is likely to continue facing modest pressures, on back of higher incremental lending to individuals (individual loans have lower spreads compared to non-individual loans). However, with loan book growing at above industry CAGR of 20.0 percent over FY2013-15E, we expect the company to sustain healthy NII CAGR of 18.9 percent over the same period.

Outlook and valuation: "Given the challenging macro developments, we believe within the BFSI space, defensive names like HDFC may not underperform the rest of the sector in spite of its rich valuations. We expect HDFC to post a healthy PAT CAGR of 17.9 percent over FY2013–15E. At CMP, HDFC's core business (after adjusting Rs 311/share towards the value of its subsidiaries) is trading at 3.3x FY2015E ABV. We recommend an Accumulate rating on the stock, with a target price of Rs 867," says Angel Broking research report.

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