Sharekhan has recommended hold rating on Housing Development Finance Corporation with a target price of Rs 1400 in its research report dated October 26, 2015.
Sharekhan research report on Housing Development Finance Corporation
Earnings up 18.2% YoY driven by dividend income: HDFC reported a net profit growth of 18.2% YoY largely driven by a sharp increase in dividend income (up 308% YoY, since HDFC Bank’s dividend came in Q2 this year as compared with Q1 in FY2015). The net interest income (NII) growth slowed (up 6.8% YoY) largely due to drop in the yields (calculated). The spreads were stable on a Q-o-Q basis at 2.32% and were marginally higher (up 3BPS) on a Y-o-Y basis.
HDFC has reduced its lending rates in view of some moderation in borrowing costs and rising competition from banks which have cut their rates sharply. Also, the high yielding developer loan book is growing at suboptimal pace which could affect spreads in the near term. Presently, the stock is trading at 5.1x FY2017 book value which leaves limited room for an upside. We have therefore downgraded the rating to Hold with an unchanged price target of Rs1,400.
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