Buy HDFC; target of Rs 1890: JM Financial

JM Financial's research report on HDFC

HDFC Ltd reported PAT of Rs. 21bn (15% YoY, inline with JMFe) as AUM growth improved to 18% YoY with sustained traction in individual loans (up 16% YoY on AUM basis), while the corporate book grew 23% YoY. Adj. NII growth moderated to 13% YoY in 2Q18. While we expect some pressure on spreads due to recent lending rates cuts, however, pickup in non-individual segment would offset the decline. GNPL ratio remained stable sequentially at 1.14%. While individual GNPL remained stable at 0.65%; non-individual GNPL increased 9bps QoQ to due to slippage of one developer account (of INR 1.6bn) to NPL. Credit cost (including provisions for standard assets) remained stable QoQ at 12bps and coverage ratio increased to 27% (vs. 26.4% in 1Q18).

Outlook
With a gradual pick up in the high-margin corporate book, we expect core operating profit growth of 18% by FY20E (vs. 14% in FY17). We value HDFC using the SOTP method and maintain BUY with a TP of Rs1,890.

For all recommendations report, click here