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December 08, 2015

Index
Stock Update >> Housing Development Finance Corporation

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investors eye

stock update

Housing Development Finance Corporation

Reco: Buy

Stock Update
Risk-reward turns favourable after recent correction; upgraded to Buy

Key points

Company details
Price target:

Rs1,400

Market cap:

Rs1,84,869cr

52 week high/low: Rs1,400/1,062


NSE volume:
(no. of shares)

25.6 lakh

BSE code:

500010

NSE code:

HDFC

Sharekhan code:

HDFC

Free float:
(no. of shares)

CMP:Rs1,171

157.77 cr

Shareholding pattern

Healthy growth in individual loans, signs of revival in non-individual book:


According to the management of Housing Development Finance Corporation
(HDFC), the high-margin non-individual loans (29.1% of loan book) have shown
some signs of recovery over the past couple of quarters (8% YoY). Even as the
company remains conservative on developer loans, it expects growth could be
much better over the next three to four quarters, given a low base and pentup growth that may kick-in. On the other hand, the individual loans continue
to report healthy growth of 23% (in Q2FY2016) including loans sold. The
reduction in interest rates coupled with pick-up in economic growth could
drive growth in mortgages.
Margins pressure in near term, asset quality to remain stable: Given the
reduction in lending rates both on individual and non-individual loans (by
average 45BPS in CY2015) the margins have dropped (calculated). While nearterm pressure on margins persist (due to higher competition, slower reduction
in cost of funds) the pick-up in non-developer loans and dip in cost of funds
may support margins over the next three to four quarters. Due to secured
lending and stringent credit practices, we expect asset quality and credit cost
to remain stable.
Upgrade to Buy as risk return turns favourable after recent correction: The
stock of HDFC has corrected by almost 12% since our report dated October 26,
2015, which suggests that the concerns related to margins have factored in. In
addition, the management commentary suggests that growth in non-individual
book will be much better over the next three to four quarters which will
support spreads and profitability. We therefore have upgraded the rating to
Buy (SOTP-based price target unchanged at Rs1,400). Presently, the stock is
trading at 4.6x its FY2017 book value (stand-alone), which is premium to other
housing finance companies (HFCs) due to superior operating metrics. We have
not factored proceeds from stake sale (9% stake to Standard Life) in life
insurance business (Foreign Investment Promotion Board [FIPB] approval
pending) and dilution on account of warrant issue.

Price chart

Risk to our call: (1) Further weakening of sentiments in the housing sector;
and (2) Irrational competition by financiers could affect earnings growth.

Financial summary

Price performance
(%)

1m

3m

-1.7

2.6

-0.4

7.4

Relative
1.1
to Sensex

-0.2

3.6

18.0

Absolute

6m 12m

Particulars
PAT (Rs crore)
EPS (Rs)
P/E
BVPS
P/BV
RoE
RoA

FY2013
4,848
31.3
37.4
160.6
7.3
19.5
2.7

Sharekhan

FY2014
5,440
34.8
33.6
179.1
6.5
19.5
2.6

December 08, 2015

FY2015
5,990
38.0
30.8
196.7
6.0
19.3
2.5

FY2016E
6,964
44.2
26.5
222.8
5.3
19.8
2.5

FY2017E
8,236
52.3
22.4
253.7
4.6
20.6
2.5

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Gross NPA (%)

Return ratios (%)

Loan spreads (%)

Advances break-up

Loan book (Rs cr)

One-year forward P/BV SD band

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December 08, 2015

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Financials
Profit and loss statement
Particulars

FY14

FY15

FY16E

6,093

6,803

7,631

8,984

10,813

Non-interest income

1,329

1,503

1,865

2,051

2,256

Net total income

7,423

8,306

9,496

11,035

13,068

681

734

677

800

944

6,741

7,572

8,819 10,235

12,124

Pre-provisioning profit
Provisions

Particulars

FY17E

Net interest income

Operating expenses

Key ratios

(Rs cr)
FY13

FY13

FY14

FY15

FY16E

FY17E

31.3

34.8

38.0

44.2

52.3

160.6

179.1

196.7

222.8

253.7

12.5

14.0

13.0

15.5

18.3

Yield on funds

10.8

10.8

10.6

10.0

9.8

Cost of funds

9.2

9.3

9.2

8.8

8.7

3.4

3.2

3.2

3.2

3.3

69.3

70.0

70.2

69.1

68.6

Cost to income

9.2

8.8

7.1

7.3

7.2

Non-interest income/

6.3

6.2

6.8

6.6

6.1

7.9

8.1

8.2

8.6

8.9

Per share data (Rs)


Earnings
Book value
Dividend
Spreads (%)

169

132

195

280

359

Profit before tax

6,573

7,440

8,624

9,955

11,765

Tax

1,725

2,000

2,634

2,991

3,530

Net interest margins

Profit after tax

4,848

5,440

5,990

6,964

8,236

Operating ratios (%)


Interest expended/

Balance sheet
Particulars

Interest earned

(Rs cr)
FY13

FY14

FY15

FY16E

FY17E

309

312

315

315

315

Assets/Equity (x)

24,521

27,643

30,655

34,767

39,630

Return ratios (%)

30,970

35,082

39,945

RoE

19.5

19.5

19.34

19.8

20.6

208,599 247,853

294,935

RoA

2.7

2.6

2.50

2.5

2.5

21.9

11.6

12.2

17.7

20.4

Liabilities
Equity capital
Reserves & surplus
Networth
Borrowings
Term loans

Total income

24,830

27,955

158,828

184,298

17,824

32,952

26,194

32,271

39,758

116,317 139,580

167,775

Growth ratios (%)

Bonds, debentures

89,071

94,768

Deposits

51,933

56,578

66,088

76,001

87,401

PPP

16.9

12.3

16.5

16.1

18.5

11,703

13,504

14,383

17,144

20,436

PAT

17.6

12.2

10.1

16.2

18.3

Current liabilities

Net interest income

& provisions
Total liabilities

195,361 225,757

253,952 300,079 355,316

Assets
Loans
Investments
Deferred tax asset
Current assets,

Advances

20.8

15.9

16.1

19.0

20.0

Deposits

14.2

16.0

13.2

18.8

19.0

37.4

33.6

30.8

26.5

22.4

7.3

6.5

6.0

5.3

4.6

Valuation ratios (%)


169,571

196,554

228,181 271,535

325,842

13,613

13,913

14,294

14,494

13,480

631

630

11,307

14,380

10,799

11,825

12,949

238

280

677

2,224

3,045

P/E
P/BV

Loans and advances


Net block
Total assets

195,361 225,757

253,952 300,079 355,316

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

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December 08, 2015

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