Profits up 23% yoy. HDFC's 1QFY11 profit rose 23% yoy, driven by rise in net interest income (NII) & lower cost-income. We retain Buy as we expect RoE to exceed 20%, supported by business growth opportunities, improving credit growth cycle and subsidiaries' robust operating performance. Robust disbursements and loan growth. Loan disbursements grew 62% yoy, with loan growth of 16.7% yoy (23% yoy adjusted for sell-down in loans to HDFC Bank). Loans to corporates comprised 35.4% of loans and grew 18.2% yoy, faster than retail housing loans (16.9% yoy). The strong continuing growth in approvals (56% yoy) augurs well for the outlook on housing-loan growth. We expect 19% CAGR in HDFC's loan book over FY10-12. Subdued other income. Fees declined 47% yoy (67.7% qoq), with dividend income significantly contributing to non-interest income in 1QFY11. Further, the NBFC did not book any capital gains this quarter compared with Rs513m yoy, adjusting for which, net profit growth was much stronger (26.4% yoy). Impeccable asset quality. Asset quality is the best in class, with net NPAs at 0.2% of loans. We expect conservative growth and high provisioning to keep credit costs low over FY10-12. Valuation. Our sum-of-the-parts valuation results in target price of Rs3,357. We value the mortgage business at Rs2,091 (3.5x FY11e BV ) and subsidiaries at Rs1,266. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints. Nothing in this article is, or should be construed as, investment advice. |
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