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Housing Development Finance Corpn. (HDFC) - Qtr. Update - Dtd. - January 21, 2013




Axis Capital Limited


21 Jan 2013





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HDFC’s Q3 performance was in line with retail loans growing 25% YoY vs. 17% for industry despite stiff competition from banks. Advances grew 21% YoY. Retail loans now account for 66% of advances vs. ~64.2% in Q3FY12. Net interest spread at 2.3% was flat with NIM declining 10 bps QoQ to 4.1%. PAT at Rs 11.4 bn was up 16% YoY. Absolute GNPA increased 1% QoQ. Q3 highlights  Higher share of low cost liabilities to maintain spread: HDFC improved its borrowing mix by increasing share of Bonds & Debentures (up 27% YoY; 57% of total borrowing), which supported NIM and interest spread.  Asset quality was stable: with gross NPA declining 2 bps QoQ to 0.75% (absolute gross NPA was up 1% QoQ and net NPA was Nil as HDFC has provisions for contingencies of Rs 17.8 bn) Positives priced in: We believe HDFC will continue to command premium valuation to peers as it (1) has unique skill set to assess loans to developers and (2) it has been able to gain market share despite banks becoming aggressive in home loan segment. However, current valuation is rich and we see limited room for upside from current levels. We introduce FY15 estimates and roll forward our TP to FY15E ABV. Our revised TP stands at Rs 879 (4x FY15E ABV). Maintain HOLD. At CMP of Rs 822, the stock trades at 4.1x FY14E ABV of Rs 123 and 3.5x FY15E ABV of Rs 143. Regards, Praveen Agarwal (Executive Director – BFSI) Institutional Equity Research Axis Capital Ltd. Tel.: + 91 22 4325 1102 Deepak Agrawal (VP – BFSI) Institutional Equity Research Axis Capital Ltd. Tel.: +91 22 4325 1133 Namesh Chhangani (AVP – BFSI) Institutional Equity Research Axis Capital Ltd. Tel.: +91 22 4325 1127

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