Re: {LONGTERMINVESTORS} HDFC..New thread..

 

Dear all,

Stable Loan book growth; High PAT on income from stake sale  

·         HDFC's loans (on book) grew at (15%YoY, 3%QoQ) to INR 2.66tn, driven by growth in the individual loan book (16% YoY) to INR 1.85tn. Corporate loan book growth was subdued at 12%YoY indicating absence of adequate opportunities and increased competition in the developer segment. The average ticket size for Individual loans stood at INR 2.53mn with an average LTV of 64%. Overall loan book (including outstanding loans sold to banks) grew 16%YoY to INR 3.02tn.

·         The portfolio mix as of 1QFY17 stands at Individual Loans – 73%, Corporate – 9%, Construction Finance – 13%, Lease rental discounting – 5%. Around 84% of the mortgages are sourced through internal affiliates indicating a lower dependence on the Selling agents.

·         Loan spread stands reduced by 3bps QoQ to 2.26% amidst decrease in return on loans by 27bps to 10.95% and Cost of borrowings by 24bps to 8.69%. Spread on individual loan was noted at 1.92% and spread on non-individual loans was noted at 3.06%.

·         During the quarter, the bank sold 22.9% of the stake in HDFC ERGO General Insurance Company to Ergo International AG resulting in a gain of INR 9.2bn which is included in the other income. Consequently, the share of HDFC stands at 50.7%.

Valuation: The stock is currently trading at P/BV of 4.9x FY18E consensus estimates, excluding valuation of its subsidiaries. Given the stable growth in the loan book coupled with healthy spreads & well-managed asset quality; we maintain a positive outlook on the stock.  Reiterate OUTPERFORMER, with a target price of INR 1,425 (Prev. Target of INR 1,350) assigning a P/BV of 5.3x FY18E. Risks: Rise in competition, particularly from banks can impact volumes & spreads; slowdown in the mortgage market.

 

Regards,

CSEC Research

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