Result Analysis – HDFC Ltd.

Result Highlight: 

• HDFC Ltd Consolidated Interest Income was flat QoQ and fall by 1.63% YoY to ₹ 11048 crore – in line with the estimates. Fee and commission income rose by 8.16% QoQ to ₹587.96

• The net interest income (NII) for the half year ended September 30, 2021 stood at ₹ 8,255 crore compared to ₹ 7,039 crore in the previous year, representing a growth of 17%.

• During the quarter company reported 3.6% NIM.

• Net profit rose 14.31% YoY to ₹5258 crore for the September quarter compared with ₹ 4599 crore in the same quarter last

• The gross non-performing loans as at September 30, 2021 stood at ₹ 10,341 crore. This is equivalent to 2.00% of the loan portfolio.

• During this quarter company saw a loan growth of 4.25% in this quarter.

• During this quarter company saw growth of 80% in individual loan book..

• Provision coverage ratio of the NBFC stood at 54.8%.

• During the quarter company received dividend of ₹ 1171 crore in this quarter.

• CRAR of the NBFC stood at 22.4%.

• Collection efficiency was at 98%.

• Cost to Income Ratio stood at 8.2% vs 8.5%.

Management commentary:

• Management sounded very confident of the real estate recovery in the country, and said that loan growth is tepid because two commercial company has repaid loan through issue of REITs.

• In first quarter around 96% of loan incremental growth was from retail but in this quarter around 75% is from retail and 25% is from commercial.

• Management said LRD book is a low margin business but it’s a good business as capital requirement is low.

• Company said collection efficiency was constant at 98%

• The Corporation is required to carry a total provision of ₹ 6,605 crore. Of this, ₹ 2,844 crore is towards provisioning for standard assets and ₹ 3,761 crore is towards non-performing assets but the company is carrying provision of 13340 crore.

• There is slight increase in stage 3 book as management has taken proactive steps to downgrade these account.

• The unaccounted gains on listed investments in subsidiary and associate companies amounted to ₹ 2,75,917 crore.

• Loans restructured under the RBI’s Resolution Framework for COVID-19 Related Stress (OTR 1 & 2.0) was equivalent to 1.4% of the loan book. Of the loans restructured, 63% are individual loans and 37% are non-individual loans. Of the total restructured loans, 35% is in respect of just one account.

• The average home loan to the EWS and LIG segment stood at ₹ 11.1 lac and ₹ 19.4 lac respectively.

OUTLOOK:

HDFC LTD reported a good set of number where loan growth in individual segment was at 23% and profit increase by 14% Y-o-Y, Spread came in at 2.29% , individual approvals and disbursements grew by 67% and 80% respectively compared to the corresponding period in the previous year. The demand for home loans continues to remain strong. Growth in home loans was seen in both, the affordable housing segment as well as in high end properties. The increasing sales momentum and new project launches augurs well for the housing sector. Individual disbursements in the month of October 21 were the highest ever in a non-quarter end month.

We believe HDFC should gain the market share as few HFCs are focusing on liability side and slowing down on asset growth. Higher provisions on the balance sheet give the cushion in P&L from any negative impact on non-individual portfolio if third Covid-19 wave impacts, the demand for home loans continues to remain strong and disbursements have picked up with the unlocking of respective locations, company has valuable subsidiaries and investment from were value can be unlock in the future. HDFC Ltd being the leader in the housing finance is expected to benefit from the rise in housing demand and with uptick in overall economy. . At the CMP of ₹2890, HDFC is trading at PE multiple of 24x. Valuing the company at 26x FY23E EPS, we recommend buy on HDFC Ltd at CMP of for the Target Price of ₹ 3430.

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