Accumulate HDFC; target of Rs 1117: KRChoksey

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26 Aug, 2025 12:21

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KRChoksey`s research report on HDFC“HDFC has delivered steady core operating performance with PAT of Rs1358, growing 7% Y-o-Y. Consolidated PAT grew 9% Y-o-Y higher than standalone earnings growth due to increase contribution from subsidiaries and associates. NII grew 19% y-o-y aided by healthy loan book (including loan sold) growth 18.5% Y-o-Y. Reported lending spreads have been stable Q-o-Q to 2.3% (2.3% in Q1FY15) due to stable lending rates and loan mix. Lower dividend income (Rs104 crs in Q2FY15 Vs. Rs171 crs in Q2FY14) has dragged reported net earnings. Loan book net of loan sold grew 14.6% y-o-y by healthy growth in retail loan book (16.5% Y-o-Y). Gross NPAs were stable Q-o-Q at 0.7% with no additional stress in the developer’s book. The company has total provisioning including specific provision at 0.7% of Loan book, significant higher than regulatory requirement. Unrealized gains increased piercingly 5.6% Q-o-Q to Rs292 per share.""NII grew 19% Y-o-Y driven by healthy loan book growth (15% Y-o-Y) and stable spreads. Retail and developers business spread stood at 197bps and 297bps respectively. Loan book incl. sell- downs grew by 18.5% y-o-y led by strong growth in retail loans (including loan sold) 22% Y-o-Y. Management continues to maintain spread in the range of 2.2% -2.3% in FY15. We model in 17.5% CAGR in NII driven by loan book 18.2% CAGR over FY14-FY17. Loan processing fees grew 19% y-o-y to Rs75 crore during the quarter. Trading gains were Rs103 crs vs. 67 in Q1FY15, dragged non interest income. Non interest income was down 3% Y-o-Y due to by sharp fall in dividend income (-38% Y-o-Y). Incrementally, retail loans book contributed 81% to total loan book growth in 1HFY15. Loan book including sell downs grew by 18.5% y-o-y driven by individual loan book (22% y-o-y) and wholesale loans (11% y-o-y). Off balance sheet book stood at Rs20756 crore (up 25.8% y-o-y). Retail and wholesale loan book mix (after adjusting loan sold) stood at 68% & 32% respectively.""Healthy business growth, impeccable asset quality, stable spreads and increasing net earnings contribution from subsidiaries and associate companies are key highlights from the result. We believe market leadership positioning in housing finance sector with healthy loan growth outlook, recovery in non retail portfolio both in terms of growth and asset quality, beneficiary from declining interest rates in 2HFY15 and unlocking value of insurance business are key value drivers for the stock in medium term. We expect HDFC to deliver 15.5% CAGR in core earnings on the back of strong loan growth, stable spreads and steady credit cost over FY14-FY17. At Rs 1036, the stock is trading at 4.6x FY16 book value and 22.4x FY16 earnings, near to its fair value. Hence, we maintain “ACCUMULATE” rating on the stock with target price of Rs1117, potential upside 8%,” says KRChoksey research report. 

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