Emkay's report on Housing Development Finance Corporation (HDFC)
NII rose by a healthy 13% yoy, in-line with overall loan growth. NII adjusted for interest on zero coupon bonds (ZCBs) also grew at a similar pace (12.8% yoy) during the quarter
Reported lending spreads improved 6bp yoy and remained largely stable qoq at 2.31%
Overall loans grew 14.4% yoy, mainly led by a 16.3% yoy growth in individual loans, while corporate loans grew 10.5% yoy
Gross NPLs were 0.69% of loans (0.53% for individual loans and 1.03% for corporate loans), largely stable qoq
"We expect the RoE over FY16-17 to hold above 20%, supported by healthy business growth, stable spreads and the robust performance of subsidiaries. However, in our view, current valuations seem to price in these positives. Hence, we have a Hold rating. We value the mortgage business at Rs921 (4x FY17e BV) and the subsidiaries at Rs464. Our sum-of-parts-valuation target is Rs1,385. Risks: Downside - Slowdown in the mortgage market, leading to lower-than estimated loan growth; morethan- expected NPA, leading to higher credit costs. Upside - The potential listing of its insurance subsidiary, which could unlock further value for shareholders. Hold the stock for target price of Rs 1,385", says Emkay Global Financial Services research report.
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