Housing Development Finance Corp Ltd (NSE:HDFC) (BSE:500010)

Housing Development Finance Corporation Ltd (HDFC) is an India-based bank providing housing finance. It provides Housing loans for resident Indians and Non-Resident Indians. Its housing loans portfolio includes home loans, home improvement loans, home extension loans, plot loans, short term bridging loans and rural housing finance. It serves Non-Resident Indians from Middle East, the United Kingdom and Singapore, among others. Its non-housing loans portfolio includes loan against property, top-up loans and non-residential premises loans.

Official website: www.hdfc.com

For 1QFY2016, HDFC has reported a PAT (standalone basis) growth of a mere 1.2% yoy to Rs1,361cr. This is due to lower dividend income, as dividend from HDFC Bank would be recorded in 2QFY2016, while in the previous year, dividend was received in 1QFY2015. Adjusted to dividend and profit on sale of investment, PAT grew at a healthy pace of 23.2% yoy. Loan book growth and Asset quality remain steady For 1QFY2016, HDFC’s loan book grew by 13.7% yoy, with loans to the individual segment growing by 23% yoy (after adding sold loans) and 15% yoy (excluding sold loans). The individual loan book has been consistently outpacing the corporate book over the past few quarters. During the quarter, incremental growth in the loan book (including loans sold) came through growth in individual loans and now constitute almost 69% of total loans as compared to 68.1% in 1QFY2015. The spread stood largely stable at 2.31% for 1QFY2016 as compared to 2.32% for the entire FY2015, while the NIM came in at 3.8% as against 4.0% for the entire FY2015 and 3.8% in 1QFY2015. NIM is facing modest pressure on back of higher incremental lending to individuals (spreads are lower for individual loans as compared to non-individual loans). However, with expectations of loan book growth at a CAGR of 19.5% over FY2015-17E, we expect the company to sustain healthy NII CAGR of 17% over the same period. Asset quality continues to remain steady for the company, as its gross NPA ratio came in at 0.69% vs 0.67% in 4QFY2015. The Gross NPA ratio of individual loans went up to 0.53% as against 0.51% in 4QFY2015 due to seasonal effect, while the Gross NPA ratio of non-individual loans portfolio went up by 3bp qoq to 1.04%. The company continues to maintain a 100% PCR. Outlook and valuation: HDFC continues to post good set of numbers despite sluggish economic environment. Overall, we expect HDFC to post a healthy PAT CAGR of 15.3% over FY2015–17E. HDFC’s core business (after adjusting Rs480/share towards the value of its subsidiaries) trades at 4.1x FY2017E ABV, which in our view offers limited scope for upside here on. Hence, we maintain our Neutral rating on the stock.

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