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Recommendations India

HDFC 3QFY2014 performance highlights and results update

January 24, 2014, Friday, 09:42 GMT | 04:42 EST | 15:12 IST | 17:42 SGT
Contributed by Angel Broking

HDFC’s standalone earnings performance for 3QFY2014 came on expected lines. PBT level earnings, adjusted for dividends and sale of investments, grew at a healthy pace of 17%, in-line with our expectations. Robust Individual advances growth (24.4% yoy) and stability witnessed on the overall asset quality front (Gross NPA at 0.77%) were the key highlights from the results.
Loan book growth and Asset quality remains healthy: For 3QFY2014, HDFC’s loan book grew by a healthy 19.5% yoy, with loans to the individual segment growing by 27% yoy (after adding back sold loans) and 24.4% 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, incremental growth in the loan book (including loans sold) came majorly through growth in individual loans, which now constitute more than 68% of the total loan book. The spreads remained stable at 2.25% for 9MFY2014 as compared to 2.24% for 1HFY2014, while the reported NIM came in at 4.0% for 9MFY2014 as compared to 4.1% for 1HFY2014. Asset quality continues to remain strong for the company, as its gross NPA ratio came in at 0.77%, as against 0.79% in 2QFY2014 and 0.77% in 1QFY2014. The company continues to maintain a 100% PCR. Going ahead, NIMs are likely to continue facing modest pressures on back of higher incremental lending to individuals (individual loans have lower spreads compared to non-individual loans). However, with expectations of loan book growth at a CAGR of 19% over FY2013-15E, the earnings for the company (adjusting for dividends and profit on sale of investments) are expected to grow at around 17% CAGR over the same period.
Outlook and valuation: Overall, we expect HDFC to post a healthy PAT CAGR of 15.3% over FY2013–15E. The stock has surged significantly from the lows witnessed in the month of September 2013 and currently, HDFC’s core business (after adjusting Rs.321/share towards the value of its subsidiaries) trades at 3.5x FY2015E ABV, which in our view, offers limited scope for upside here on. Hence, we recommend a Neutral rating on the stock.