Buy HDFC; target of Rs 873: AnandRathi
Brokerage house AnandRathi is bullish on Housing Development Finance Corporation (HDFC) and has recommended buy rating on the stock with a target price of Rs 873 in its research report dated July 22, 2013.
July 29, 2013 / 11:59 IST
AnandRathi's report on Housing Development Finance Corporation (HDFC)
"HDFC's advances grew 19.4 percent yoy (24 percent on adjusting for "sell-down" in loans), with retail loans growing 24.1 percent yoy (31 percent on adjusting for "sell-down" in loans). Robust loan growth, coupled with stable 2.3 percent spreads, led to net interest income (NII) growth of 17.5 percent yoy. We estimate HDFC's loans to record a 19.4 percent CAGR over FY13-16, led by healthy demand from retail customers.""Fees declined 11.9 percent yoy (38.1 percent qoq); its share in non-interest income fell from 23 percent in 1QFY13 to 16.1 percent in 1QFY14. Income from dividends grew 36.1 percent yoy (167 percent qoq) and comprised 13.5 percent of profits before tax, compared to 11.6 percent in 1QFY13. Productivity was stable, with cost-income up 44bps yoy to 9.1 percent, one of the lowest among peers.""Asset quality is the best in class, with gross NPA at 0.77 percent of loans, down from 0.79 percent in 1QFY13. While non-performing loans for individuals fell 6bps yoy to 0.61 percent of loans, they increased 8bps for non-individual loans to 1.08 percent. We expect HDFC's prudent growth and high NPA provision buffer to keep credit costs low over FY13-16. With capital adequacy of 16.3 percent (tier-1 of 14 percent), it is adequately capitalized for growth opportunities in housing finance."Our take: "Robust loan growth, sturdy spreads and stable asset quality have driven profits. We have a Buy rating as we expect the RoE over FY14-15 to hold above 20 percent, supported by healthy business growth, stable spreads and the robust performance of subsidiaries. Our sum-of-parts-valuation price target is Rs 873. We value the mortgage business at Rs 594 (3.3x FY14e BV) and the subsidiaries at Rs 279. Risk: Significant slowdown in the mortgage market, leading to slower-than estimated loan growth," says AnandRathi Securities research report.Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. 
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