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HDFC 1QFY2015 performance highlights and results update

July 24, 2014, Thursday, 04:37 GMT | 00:37 EST | 08:07 IST | 10:37 SGT
Contributed by Angel Broking

HDFC reported a good set of numbers for 1QFY2015. Its PAT (standalone basis) rose by 15% yoy to Rs.1,345cr, aided by a strong growth in operating income (by 18% yoy) and relatively lower growth in operating expenses (ie, of 5% yoy). Other income grew by 41.1% yoy, aided by a 39.3% yoy growth in dividend income and 23.2% yoy growth in fee income. Earnings adjusted for dividends and sale of investments grew by 8.9% yoy, similar to the 9.9% yoy growth in 4QFY2014. However adjusting for deferred tax liability of Rs.77cr, provided on Special Reserve as per guidelines of the National Housing Bank (NHB), the yoy growth in core profitability would stand at 17%. Advances grew by 15% yoy, aided by healthy growth in individual advances (by 17% yoy). Asset quality witnessed stability with Gross NPA at 0.7%.

Loan book growth slows; Asset quality remains healthy: For 1QFY2015, HDFC’s loan book grew by a moderate 15% yoy, with loans to the individual segment growing by 23% yoy after adding back loans sold in the last 12 months and by 17% yoy excluding sold back loans. HDFC has been incrementally growing its individual loan book, much faster than its corporate loan book, over the past few quarters. During the quarter under review, incremental growth in the loan book (including loans sold) came majorly through growth in individual loans, which now constitute almost 68% of the total loan book as against 66.9% in 1QFY2014. The reported standalone NIM for 1QFY2015 stood at 3.8%. The spread remained steady at 2.29% on a yoy basis, as a dip in spread on individual loans was offset by increase in spread on non individual loans. During 1QFY2015, the asset quality continued to remain strong for the company, as its gross NPA ratio came in at 0.7% (compared to 0.7% in 4QFY2014 and 0.77% in 3QFY2014). The company continues to maintain a 100% PCR. However, with expectations of loan book growth at a CAGR of 18.5% over FY2014-16E, the earnings of the company are expected to grow at a CAGR of 14.1% over the same period.

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 14.1% over FY2014–16E. The stock has gained in the recent rally and currently, HDFC’s core business (after adjusting Rs.326/share towards the value of its subsidiaries) trades at 4.3x FY2016E ABV, which in our view, offers limited scope for upside in the stock price, here on. Hence, we maintain our Neutral rating on the stock.