HDFC - Lower Core Revenue Traction; Asset Quality Intact; Result Update Q4FY15 ::Edelweiss

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HDFC (HDFC IN, INR 1,201, Hold)   HDFC’s Q4FY15 PAT of INR18.6bn came in marginally lower than our estimate, owing to slower revenue traction. NII growth was restricted to 10% YoY owing to lower-than-anticipated spreads, as large part of corporate loan growth happened towards fag end of the quarter (benefits of which will accrue in subsequent quarter). As anticipated, individual loan book grew 17% post sell-downs (23% adjusted for sell-downs). GNPLs were stable at 0.67% (versus 0.69% in Q3FY15) – normally Q4 witnesses decline in GNPLs. Profitability was aided by sale of investments (stake sale in life insurance business to the Azim Premji Trust), dividend income, improved fee traction (on higher corporate growth), which offset the impact of INR180mn provided for CSR (higher CSR spend is expected in FY16). With asset growth expected at 17-18% and spreads at 2.3%, we estimate PAT CAGR of 16% over FY15-17. The stock is trading at 4.0x FY17E core mortgage book. Maintain ‘HOLD’.   Individual loans sustain momentum, corporate growth inches up Loan book grew 16% YoY to INR2.3tn, led by 17% growth in individual loans. In the preceding 12 months, INR82.5bn of loans were sold, adjusted for which individual loans would have clocked an impressive 23% YoY growth and overall loan book 20%. Meanwhile, corporate book growth gained traction, registering 6% QoQ growth — this was back ended in nature and spread benefits will accrue in ensuing quarters. Self-employed segment now forms 19% of incremental disbursements compared to outstanding base of 10-12% of indiivdual loans. Reliance on loan against property for HDFC is relatively low and forms less than 5% of individual loan book (this is not a focus segment). We anticipate individual loan CAGR of 17-18% over FY15-17.    Outlook and valuations: Fairly valued; maintain ‘HOLD’ Earnings growth trajectory for HDFC moderated to 13-14% during FY14-15 compared to its consistent historical track record of 20%. However, being a leading housing financier, HDFC will be key beneficiary of emerging opportunities in the mortgage finance sector, thereby supporting 17-18% asset growth and 16-17% earnings growth over FY15-17E. Assigning 4.5x to FY17E core mortgage book and investment value at INR530, our SOTP fair value is now pegged at INR1,312. Maintain ‘HOLD/ SU’.

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