Re: {LONGTERMINVESTORS} What is Sacred About HDFC? If You Have To Sell, Then Why Not?

This is From JP Morgan

On Mon, Jan 18, 2016 at 12:08 PM, Rajiv Handa <rhapositive@gmail.com> wrote:

HDFC (Housing Development Finance Corporation) Growth tapering, but strong ROEs & asset quality

Investment Thesis, Valuation and Risks HDFC (Housing Development Finance Corporation) (Overweight; Price Target: Rs1,400.00) Investment Thesis  We see the stock as a steady, low risk holding for investors. The returns may not be as high as some of the private banks, but the volatility should also be lower given its strong balance sheet and low NPL risk.  The long-term growth prospects remain strong, in our view. Mortgages in India are still underpenetrated, and increased urbanization should underpin sustained growth. HDFC's competitive positioning remains strong, given its execution strengths and the leverage from HDFC Bank's distribution.  PAT growth, which has been lagging loan growth due to multiple regulatory adjustments, should now start to normalize. Recovery in the wholesale loan segment should also help.  We believe current valuations are reasonable in the context of high return ratios and strong growth opportunities. Valuation Our SOTP, Mar-17 PT for HDFC of Rs1,400 is based on a) 2 stage Gordon growth model for the mortgage business  implying 3.1x Mar18 book b)Rs530/share valuation for the subsidiaries. Our valuations factor in Cost of Equity at 15.7%, Normalised ROE of ~30% and terminal growth of 5%.

Risks to Rating and Price Target Key downside risks to our ratingand price target include: (1) a significant slowdown in the real estate market, which could have an impact on loan demand for HDFC; and (2) increasing competition from banks in the home loans space, which could affect revenue growth in the medium term. 

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