Hold HDFC; target of Rs 1100: Sharekhan

Sharekhan`s research report on HDFC

“We met HDFC’s management to understand growth prospects amid rising competition in mortgage space. Since HDFC’s individual loans have grown by over 25% in the past couple of years, the company expects the growth to be slightly lower (+20%) in FY2015 due to a high base of the previous year. Given its competitive offering, specialisation in mortgage lending and base rate constraints by banks, it is not overly worried about the rising competition. While growth in developer loans has been muted, HDFC expects to grow this book by ~15% in FY2015 as sentiments are improving and could lead to a pickup in demand for credit. Since developer loans are return on asset (RoA) accretive (due to higher yields and fee income), any pick-up in these loans will contribute to improved profitability.” “HDFC’s stock price has appreciated (made a 52-week high of Rs1,150) in the recent past on expectation of a merger with HDFC Bank (though we do not expect the merger to be RoA accretive in the near term). At the operating level HDFC continues to deliver a superior performance led by a strong growth, steady margins and robust asset quality. However, the stock is trading at premium valuations (4.6x FY2016E book value), the scope for upside is limited. We have revised our SOTP based price target to Rs1,100 based on a revision in the estimates and upgrade in the valuation of the insurance subsidiaries. We maintain Hold rating on the stock,” says Sharekhan research report.

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