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HDFC LTD
Housing Development Finance Corporation (HDFC)
earnings for Q2 FY11. The company's Q2 net profit was up 21.
6.64bn in the corresponding quarter last year. Its Net Interest Income
Rs 10.1bn versus Rs 7.3bn last year.
The key takeaways from the result are
• As of H1FY11, the total assets of HDFC stood at Rs 1
H1FY10. The loan book stood at Rs 1.06tn, registering a growth of 24%
sales of Rs 48.5bn) as against Rs 890bn last year. The deposits
from Rs 205bn last year.
• Retail loans, which form more than 60% of advances
disbursements improving by 49% and 42% Y-o-Y respectively
• The unrealized gains on HDFC's listed investments increased
133bn excluding the appreciation in the value of unlisted investments
• The asset quality situation at the end of Q2FY2011 remained
net non-performing loans at 0.86% and 0.2% repectively.
Based on a Sum-Of-The-Parts Valuation, the fair value for
out to Rs 780.
Projections (Rs Mn) Q2FY10 Q2FY11 % chg
Interest Earned 25,729 27371
Interest Expenditure 18,365 17176
Net Interest Income 7,364 10195
Total Income 28,503 29,703
PAT 6,639 8,075
EPS Rs 5 5.5
BVPS Rs 100 118
NIM % 3.8% 3.3%
RoE %
PER x
Price/ BV
* EPS & BVPS adjusted for stock split
Financial Snapshot
HOLD
Housing Development Finance Corporation (HDFC) reported 22% growth in
The company's Q2 net profit was up 21.6% at Rs 8.08bn versus Rs
et Interest Income (NII) was up 38% at
1.26tn as against Rs 1.04tn in
, registering a growth of 24% (including loan
deposits grew 31% to Rs 268bn as
more than 60% of advances, saw loan approvals and
respectively for H1FY11.
increased to Rs 232bn from Rs
the appreciation in the value of unlisted investments.
The asset quality situation at the end of Q2FY2011 remained strong with the gross &
repectively.
, the fair value for HDFC Ltd works The interest spreads have remain2.34% leading to a nearly in NIMs to 3.8%
Recommendations
Strong Buy
Buy
Hold
Reduce
SellStrong Buy – Expected Returns > 20% p.a.
Buy – Expected Returns from 10 to 20% p.a.
Hold – Expected Returns from 0 % to 10% p.a.
Reduce – Expected Returns from 0 % to 10% p.a. with possible downside risk
Sell – Returns < 0 %
BSE / NSE Code
CMP Rs (19th Oct’10)
Market Cap ( Rs mn)
52 Week High-low
HDFC
Sensex
Nifty
STOCK RETURN (%)
STOCK DATA
% chg FY09A FY10A % chg FY11E
6% 104,863 104,506 0% 125,240
-6% 74,325 70,631 -5% 80,780
38% 30,538 33,875 11% 44,459
4% 110,177 113,608 3% 134,973
22% 22,825 28,265 24% 35,388
22% 15.6 19.3 24% 24.2
17% 89.9 104.0 16% 128.5
3.8% 3.6% 3.3%
18.2% 20.0% 20.8%
30
6
spreads have remained robust at leading to a nearly 50bps improvement
<= 1 year 1 - 2 yrs 2 - 5 yrs
Expected Returns > 20% p.a.
Expected Returns from 10 to 20% p.a.
Expected Returns from 0 % to 10% p.a.
Expected Returns from 0 % to 10% p.a. with possible downside risk
30D 3M 6M 1Y
5% 18% 34% 28%
2% 12% 15% 15%
2% 12% 16% 17%
780 / 460
STOCK RETURN (%)
500010 / HDFC
721
1,052,723
FY11E FY12E
125,240 155,333
80,780 93,474
44,459 61,860
134,973 168,227
35,388 49,610
24.2 34.0
128.5 162.5
3.3% 3.3%
20.8% 23.3%
30 21
6 4
OTHER HIGHLIGHTS
There has been a strong pick-up in the residential housing demand, which augurs well
players including HDFC as it would also ease competitive press
leadership for HDFC.
In the near term, increasing cost of funds may put pressure on the company
model of the company remains strong with a robust distribution network span
offices of HDFC's distribution company, HDFC Sales Private (HSPL)
network. The company’s banking; insurance and asset management
their respective business segments which would unlock tremendous
We expect HDFC Ltd’s NII to grow at a CAGR of 35% over FY2010
estimate that PAT would grow at a CAGR of 32% over FY2010
Based on a Sum-Of-The-Parts Valuation, the fair value for
We recommend a ‘HOLD’ rating on the stock.
Particulars (Rs Mn) FY2008 FY2009 FY2010
Interest Earned 77,840 104,863 104,506
Interest Expenditure 51,846 74,325 70,631
Net Interest Income 25,994 30,538 33,875
Non-Interest Income 632 1,149 2,317
Other Income 10,268 4,165 6,786
Total income 88,740 110,177 113,608
Operating Income 26,626 31,688 36,192
Non-Interest Expense 3,159 3,662 3,818
Less: Tax 9,373 9,365 10,895
Profit After Tax 24,363 22,825 28,265
EPS (Rs) 16.7 15.6 19.3
BVPS (Rs) 81.8 89.9 104.0
Net Interest Margin (%) 3.9% 3.8% 3.6%
RoA (%) 3.4% 2.6% 2.7%
RoE (%) 27.8% 18.2% 20.0%
Valuation Ratios (x)
P/E
Price/ BV
* EPS & BVPS adjusted for stock split
Financial Analysis and Projections
up in the residential housing demand, which augurs well for housing finance
ve pressures from other players in this space ensuring
cost of funds may put pressure on the company’s spreads. However, the business
distribution network spanning 283 outlets, including 66
offices of HDFC's distribution company, HDFC Sales Private (HSPL) apart from leveraging on HDFC Bank’s branch
asset management subsidiaries are progressing aggressively in
tremendous value going forward.
% over FY2010-12 to Rs 61.8bn by FY2012. We further
% over FY2010-12 to 49.6bn in FY2012.
aluation, the fair value for HDFC Ltd works out to Rs 780.
SOTP Valuation
HDFC Methodology
Standalone Entity P/ BV multiple of 3.5 for FY12E
HDFC Subsidiaries Value
HDFC Bank 25% holdg discount to Market Cap
HDFC AMC 5% of AUM
HDFC Property Fund 10% of AUM
HDFC Life Insurance 12x FY12E NBAP Margin
HDFC General Insurance Ergo Stake Sale in 2008
Gruh Finance 25% holdg discount to Market Cap
Total Value
FY2010 FY2011E FY2012E
104,506 125,240 155,333
70,631 80,780 93,474
33,875 44,459 61,860
2,317 2,664 3,144
6,786 7,069 9,751
113,608 134,973 168,227
36,192 47,124 65,003
3,818 5,042 5,851
10,895 13,762 19,293
28,265 35,388 49,610
19.3 24.2 34.0
104.0 128.5 162.5
3.6% 3.3% 3.3%
2.7% 3.0% 3.8%
20.0% 20.8% 23.3%
29.7 21.2
5.6 4.4
HDFC's capital adequacy ratio stood at 14.1% as against the minimum requirement of 12%. The management has said that it has no plans to divest stake in the banking arm.
Methodology Value
P/ BV multiple of 3.5 for FY12E 569
211
25% holdg discount to Market Cap 132
5% of AUM 21
10% of AUM 8
12x FY12E NBAP Margin 42
Ergo Stake Sale in 2008 5
25% holdg discount to Market Cap 4
Total Value 780