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Spark Capital: Q3FY13 Result Reviews of HDFC




Spark Capital Advisors(India) Private Limited


27 Jan 2013





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HDFC - Results in line; Larger sector level concerns persist: Maintain SELL HDFC’s Q3FY13 results were in line with our expectations except for higher than expected loan growth. Individual loan book inclusive of loans sold at 31% (25% net of loans sold) continues to drive the loan growth. Despite the competition on retail loan segment increasing, lower cost of funds helped HDFC in maintaining retail spreads on qoq basis. We turned negative on the stock recently driven by sector level concerns on sustainability of the current value driven growth. Our analysis of the sector over last decade suggests that of the 11x system level growth in home loans portfolio ticket size increases have contributed towards ~2/3rds of loan growth. This was driven by significant increases in the disposable income especially in the IT sector, system level drop in interest rates and higher loan eligibility driven by tenor increases. We do not see significant legs for this kind of growth to sustain. Further, on the supply side, inventory levels have been rising while absorption rates have steadily been coming down. From HFCs standpoint we expect NHB to increase minimum tier-1 capitalization requirement from 6% which is the lower than the requirement for banks and other mono-line NBFCs. We retain our negative view on the stock as we expect our concerns to play out in the coming quarters. Maintain SELL rating with a TP of Rs. 710

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