Housing Development Finance Corporation
Cluster: Evergreen
Recommendation: Buy
Price target: Rs785
Current market price: Rs678
A steady performance
Result highlights
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HDFC's Q1FY2013 results were broadly in line with our estimates as its net profit grew by 18.6% year on year (YoY; down 24.4% sequentially) to Rs1,002 crore driven by a strong growth in the net interest income (NII) and a higher dividend income (up 21% YoY).
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The NII increased by 19.1% YoY; down 25.2% sequentially to Rs1,304 crore. This was led by a strong growth in the loans and stable interest spreads.
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During Q1FY2013 the overall loans expanded by a strong 23% YoY (by 19% excluding the loans sold). The individual loans were up 29% YoY (up 23% excluding the loans sold) while the interest spreads remained stable at 2.27%.
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The loan approvals saw a growth of 17% compared with the 20% growth in FY2012 whereas the disbursements grew by 20% during the quarter.
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However, the gross non-performing assets (NPAs) expanded slightly on a quarter-on-quarter (Q-o-Q) basis as the gross NPAs (GNPAs) were at 0.79% vs 0.74% in Q4FY2012 (based on six-month overdue, the GNPAs stood at 0.49% vs 0.44% in Q4FY2012). The outstanding provisions including the standard asset provisions on the balance sheet stood at Rs1,711 crore as against the GNPAs of Rs1,190 crore.
Valuation
HDFC continues to grow its book at a healthy rate despite a challenging environment. The growth is aided by a strong distribution network (metro and non-metro regions both) and competitive pricing of products. We expect the loan book to expand at a compounded annual growth rate (CAGR) of 20% over FY2012-14 leading to a growth of 19% (CAGR) in the earnings. We maintain our Buy recommendation on HDFC with a sum-of-the-parts (SOTP) based price target of Rs785 (valuing the subsidiaries and investments at Rs235 per share).
Bajaj Auto
Cluster: Apple Green
Recommendation: Hold
Price target: Rs1,690
Current market price: Rs1,513
Annual report review
Export growth and margin sustenance: the key achievements of FY2012
Bajaj Auto Ltd (BAL) grew its exports by 31% year on year (YoY) in FY2012; the growth was much higher than the 6.3% year-on-year (Y-o-Y) growth in its domestic business. A strong demand for two-wheelers and three-wheelers from Africa, Latin America and South East Asia helped the exports touch 1.58 million units in the fiscal.
The company maintained its status as the most profitable automotive original equipment manufacturer (OEM) in the country with its operating profit growing by 18% YoY.
Reviving domestic share and sustaining margins: the key goals for FY2013
The management has expressed its dissatisfaction over the company's sluggish performance in the domestic market as well as the loss of its market share to the competition. Thrust on new product launches, increased marketing initiatives and improving delivery are expected to support growth and help BAL outperform the industry.
Outlook: growth environment challenging; maintain Hold
The management has guided for a volume target of 5 million units in FY2013. This reflects a growth of over 15% during the year. Given the challenging macro headwinds in some export markets as well as in the domestic market, we believe that achieving the FY2013 guidance may be difficult. The management is banking on new product launches to boost the market share and growth in FY2013 but given the overall industry growth expectations of 12% for FY2013, the outperformance looks difficult. Our estimates for FY2013 and FY2014 remain unchanged. In view of the adverse demand scenario in H1FY2013 and a likely negative surprise on the margin front in Q1FY2013, we maintain our Hold recommendation on BAL.
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