Hold HDFC; target of Rs 2160: Edelweiss

Edelweiss' research report on HDFC

HDFC’s Q4FY18 PAT of INR28.5bn surpassed expectations on lower tax rate (19%, benefiting from DTA credit utilisation), even as core profitability was softer. NII growth remained soft at ~13% YoY, which, coupled with modest net fee income (INR650mn), led to sub-13% revenue momentum. However, there were signs of pickup in growth—overall loans jumped >21% YoY (~16% average run rate in past eight quarters) led by individual segment (up 23% YoY, benefitting from Affordable Housing and no sale to HDFC Bank). GNPLs were steady at 1.11% (1.15% in Q3FY18), but provisions rose as HDFC utilised gains from stake sale (of INR2.65bn) to shore floating provisions (INR800mn). With steady operational performance this quarter, valuation at 2.6x FY20E P/ABV (core mortgage) appears fair for RoE of 16.5% in FY20E. Hence, maintain ‘HOLD’.

Outlook

However, valuations at 2.6x P/ABV for core RoE of 16.5% appears fair. Maintain ‘HOLD/SP’.