HDFC jumps 4.4% from day's low; analysts see up to 26% upside post Q3 nos

CLSA has raised its target price from Rs 2,850 on the back of strong beat on NII, improvement in net interest margin by 20 bps QoQ, and adequate provisioning of 1.4 per cent of AUM

HDFC shares bounced back 4.4 per cent from its intra-day low of Rs 2,618 apiece on the BSE on Wednesday as analysts remain positive on the housing financier's outlook despite a 65 per cent year-on-year (YoY) decline in net profit at Rs 2,925.8 crore for the quarter ended December 2020. Its PAT stood at Rs 8,372 in the year-ago period (Q3FY20).

"HDFC profit declined due to last year one time gain of Rs 9,019 crore. During the previous year, GRUH Finance, an associate company, was merged with Bandhan Bank effective October 17, 2019. The Corporation recorded a fair value gain of around Rs 9,019.81 crore through the Statement of Profit and Loss during the quarter ended December 31, 2019 on derecognition of investment in GRUH," HDFC said in a statement.

That said, its consolidated net profit, attributable to the owners, however, came in at Rs 5,176.76 crore for the quarter under review, clocking an improvement of 35 per cent on year, from Rs 3,835.38 crore reported in Q3FY20. 

Revenue from the operations, meanwhile, stood at Rs 11,707 crore for the quarter under review, as compared to Rs 20,285.47 crore in the corresponding quarter of the previous fiscal. This included Rs 157 crore income via sale on investments, and an income from derecognised/assigned loans worth Rs 410.28 crore. On the upside, the NBFC's net interest income (NII) increased 23.4 per cent YoY to Rs 4,068 crore for Q3FY21, up from Rs 3,296.7 crore reported in Q3FY20.

On the asset quality front, HDFC said overall collection efficiency ratios for individual loans have improved, nearing pre-Covid levels. The collection efficiency for individual loans in the month of December 2020 stood at 97.6 per cent compared to 96.3 per cent in the month of September 2020. 

At close, the stock was quoting at Rs 2,704 per share, up 1.7 per cent on the BSE, as against a 0.9 per cent rise in the S&P BSE Sensex. The stock hit an intra-day peak of Rs 2,734.

Here's how brokerages interpret the result:

Jefferies

Target price: Rs 3,340 | Recommendation: BUY

The brokerage remains bullish on the stock on the back of healthy Q3 topline improvement. Besides, it likes HDFC's strong disbursement growth and stable asset quality. 

"HDFC is well placed to leverage housing demand and potential construction financing... We raise our estimates by 5-6 per cent to factor-in better topline growth and lower provisioning going forward," it said.

CLSA

TP: Rs 3,000 | Rating: Outperform

The global brokerage has raised its target price from Rs 2,850 on the back of strong beat on NII, improvement in net interest margin (NIM) by 20 bps QoQ, and "adequate provisioning" of 1.4 per cent of assets under management (AUM).  

It has raised FY22/23 earnings estimate by 4-5 per cent on higher margins. 

ICICI Securities

TP: 3,231 | Reco: BUY

HDFC's Q3FY21  earnings were  characterised  by strong  core-NII  growth settling upwards of 25 per cent with NIMs further expanding 30bps to 3.7 per cent; meaningful uptick in individual loan disbursements (26 per cent YoY) suggesting market share gain; collection efficiency nearing pre-Covid level for retail loans, though lags for non-individual segment (sub-80 per cent); and rise in stage-2 pool to 7.1 per cent that will keep  bucket-wise  movement  volatile -though  has  conservatively  included restructuring  and  ECLGS  pool.  

Earnings  quality, the brokerage says,  reflects  its  improving  market positioning with capital buffer, funding cost benefit and ability to contain stress even during challenging times (stage-2/3 pool capped sub-10%). "Going ahead, AUM growth momentum nears double digit  and  overall  provisioning  buffer  of  2.7 per cent  (of  advances)  improves visibility on growth and credit cost outlook," it said.

Motilal Oswal Financial Services

TP: Rs 3,300 | Reco: BUY

"Q3FY21 was a strong quarter on all fronts. Disbursements have been picking up MoM and have crossed YoY levels over the past quarter. With declining cost of funds and reduction of excess liquidity on the balance sheet, margins should be stable despite pressure on retail lending yield. CE trends are encouraging. With provisions more than gross NPLs, we believe the company has made more-than-adequate provisions for any potential asset quality slippages in ensuing quarters. Our core PBT/PAT estimate for FY21/FY22E is largely unchanged. We expect HDFC to report core RoA/RoE of 2 per cent/13 per cent over FY22–23E," it said in a results' review report.

Nirmal Bang Institutional Equities

TP: Rs 3,128 | Reco: BUY

Given the company's market positioning, analysts at the brokerage expect the comparatively lower CoF to be a durable competitive advantage for HDFC. Total loan book grew by 9.3 per cent YoY and 1.9 per cent QoQ. Segment wise, the individual loan book grew by 10.5 per cent YoY and 3.8 per cent QoQ. After adding back the loans sold, individual book growth was 16 per cent YoY. 
 

"There has been a significant recovery in volume and the momentum is expected to continue, owing to low interest rates, softer property prices, concessional stamp duty rates and continued fiscal incentives on home loans. In Dec'20, the company witnessed the highest ever level of receipts, approvals and disbursements. What makes the growth even more sustainable is that demand so far has mostly been fresh and not pent up," they noted in a recent report.

They added: HDFC's ability to monetize this economic value and create contingency buffers provides the balance sheet far more strength. We remain structurally positive on the company and expect it to maintain its leadership position in the housing finance industry. We keep HDFC Ltd as one of our top buys in the broader lending space given the strong performance by the company, dominant market share (14 per cent) and reasonable valuation.

Phillip Capital

TP: Rs 3,080 | Reco: BUY

The brokerage notes that HDFC, being a dominant player, witnessed similar faith in its individual loan portfolio. However, the under construction projects has witnessed delays and low sales velocity due to national wide lockdown and borrowers preference for ready to move property. The impact of same would trickle down to associated entities including the financiers. 

"However we believe that, HDFC's superior know how of the segment; strict underwriting practices and buffer provision would help it to better manage the credit loss. We maintain BUY rating for the stock with revised TP of Rs 3,080. At CMP, HDFC’s core book trades at 2.3x/2.1x/1.9x our FY21e/22e/23e core ABV of Rs 501/553/610 per share (net of investment in subsidiaries), considering a value of Rs 1,505 per share for subsidiaries," it said.

Kotak Institutional Equities

TP: Rs 2,750 | Reco: Add

Two key takeaways from HDFC’s 3QFY21 results viz. (1) disbursement growth picked up significantly and will likely remain strong for the next few quarters and (2) with a large non-individual loan book stress recognized/addressed (through restructuring, NPL, ECLGS disbursements), we don't expect any major near-term swings in asset quality performance or credit costs. Improving cash flows of developers will augur well over the medium-term for recoveries as well as NIM; high ECL provides comfort in the interim.

"We revise our FV to Rs2,750 from Rs2,600 to reflect higher medium-term growth and value of the core business (valued at 2.4X core book); at our FV, HDFC Bank is valued at 3.4X book, HDFC Life at 3.8X EV and HDFC AMC at 27X earnings. Developments on its eventual merger with HDFC Bank, in lights of RBI’s proposed bank license guidelines, will be sensitive to medium-term stock performance," the brokerage noted.