HDFC rating – Buy: Healthy showing by the company in Q4

An worker attends to prospects at a Housing Improvement Finance Corp. (HDFC) financial institution department in Mumbai, India, on Monday, June 3, 2019. The Reserve Financial institution of India fee choice is scheduled for June 6. Photographer: Dhiraj Singh/Bloomberg

HDFC delivered a strong 60% y-o-y improve in particular person dwelling mortgage disbursements in This fall (42% y-o-y development throughout H2FY21), which resulted in a wholesome 5% q-o-q and 13% y-o-y improve in particular person loans (web of assignments). Total mortgage development (+11% y-o-y /+3% q-o-q), nonetheless, was impacted by heavy run-down within the lease rental discounting e-book throughout the quarter. Administration indicated that mortgage disbursements in April alone are larger than that recorded throughout Q1FY21. Nevertheless, the momentum is more likely to cool off in coming months resulting from rising COVID-19 caseload and intermittent lockdown scenario.

Asset high quality stays secure: Total asset high quality remained largely secure with gross stage 3 property at 2.3% – secure q-o-q. Segmental asset high quality too remained secure. Restructured loans stood at ~Rs 45 bn or 0.8% of AUM, of which round 27% had been particular person loans and stability from non-individual section. Restructured loans are labeled as stage 2 property. Disbursements beneath ECLGS scheme stood at ~`25 bn (~0.4% of AUM). Dangerous mortgage write-offs in FY21 stood at Rs 13.7 bn or ~0.25% of AUM.

NIMs compress q-o-q; opex stays elevated: Sequential compression in mortgage yields outpaced the decline in price of funds, thereby placing stress on web curiosity margins. Curiosity on curiosity reversal of Rs 1.1 bn additionally impacted yields. Nevertheless, this was offset by wholesome project earnings of Rs 4.4 bn which helped recoup some margin loss. Opex remained elevated on larger ESOP associated prices.

Outlook: We scale back our FY22/23e earnings by a median 7% on decrease development assumptions and revise our SOTP-based TP to Rs 2,900 (from Rs 2,930 earlier). We retain Purchase score as we consider HDFC’s dominant place within the mortgages section makes it effectively poised to profit from sturdy demand in particular person housing. Additionally, falling price of funds permits it to compete in opposition to massive banks and shield/develop its market share.

With the core mortgage enterprise buying and selling at c2.1x FY23e PBV, valuations are enticing, in our view. Apart from, most of its subsidiaries within the monetary providers area proceed to do effectively. Draw back dangers: (i) extended and deepened impression of the second wave of COVID-19; (ii) aggressive product pricing by banks; and (iii) a moderation in housing demand.