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MOSL: HDFC (Buy) – Loan - AUM growth moderates - Stable spreads and asset quality - Core RoEs of 25%




Motilal Oswal Securities Ltd.


22 Jul 2014





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HDFC 1QFY15: Loan/AUM growth moderates; Stable spreads and asset quality; Core RoEs of 25% (HDFC IN, Mkt. Cap USD20.8b, CMP INR1011, TP INR1190, 18% upside, Buy) HDFC’s 1QFY15 PAT grew 15% YoY to INR13.4b (in-line). Marginally lower-than-expected loan growth led to 2% below estimated NII. Spreads were stable YoY at 2.29%. Better-than-expected dividend income compensated for lower trading gains. Individual AUM growth was healthy at 17% YoY (+4% QoQ). However, risk aversion on corporate side (+10% YoY and +2% QoQ) dragged down AUM growth to 15% YoY and 3% QoQ to INR2.24t. 1QFY15 overall and individual approvals/disbursements grew ~18% YoY. Asset quality remains healthy, with individual GNPA ratio of 55bp (down 6bp YoY) and corporate GNPA percentage of 1% (down 7bp YoY). Other highlights: a) ZCB interest debit to reserves for 1QFY15 was INR964m v/s INR967m a year ago, b) HDFC created DTL on special reserve (as per NHB guideline), which led to a decline in reserve by INR21.97b, c) higher tax rate of 30% v/s historical range of 26-27%. We see this just as an accounting entry and continue to treat DTL as a part of net worth and d) due to a change in depreciation policy, as per new companies act, there was a gross reversal of INR146m and net writeback of INR66m v/s average charge of INR80-90m in the previous quarters. Valuation and view: Near term business growth to be driven by momentum in individual segment. Expected pick-up on corporate side in 2H will provide strong delta on earnings (high fees and spreads). Ability to manage spreads and strong expertise in housing segment will help HDFC report healthy AUM and earnings CAGR of 19% and 17% over FY14-16E. Maintain Buy with an SOTP-based target price of INR1,190.

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