fce_HDFC_26Apr10

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Peer Group

Investment Highlights

Stock Data

Sector Financial ServicesFace Value (Rs.) 10.0052 wk. High/Low (Rs.)

2875.00/1650.00Volume (2 wk. Avg.)

76000BSE Code 500010Market Cap (Rs.mn.) 808240.56

Financials(Rs.mn.) FY09 FY10E FY11E

Net Sales 09695.6 113170.3 124487.4

EBIDTA 06689.5 109921.7 120492.1

PAT 22825.4 26580.1 31430.9

EPS (Rs.) 80.24 92.98 109.95

P/E (x) 35.24 30.41 25.71

Housing Development Finance Corp. Ltd

HDFCBUY

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SYNOPSIS

HDFC is India's premier housing financeentity in existence for over 30 years andwith a presence in banking, insurance andasset management, the HDFC Group is animportant part of the Indian financialservices.

As at December 31, 2009, the total assets of HDFC stood at Rs. 1,04,560 crore asagainst Rs. 95,112 crore as at December31, 2008 – an increase of 10%.

As at December 31, 2009, the loan book

stood at Rs. 90,410 crore.

HDFC’s capital adequacy ratio stood at14.8% of the risk weighted assets, asagainst the minimum requirement of 12%.

The HDFC has launched a special homeloan product under which it will chargeinterest at a fixed rate of 8.25% per annum(p.a.) up to March 31, 2011.

HDFC has allotted 1,31,239 equity shares

of Rs. 10 each pursuant to conversion of FCCBs.

Net Sales and PAT of the company areexpected to grow at a CAGR of 15% & 10%over FY08 to FY11E.

1 Year Comparative Graph

HDFC BSE SENSEX

V.S.R. Sastry

Equity Research Desk

[email protected]

Dr. V.V.L.N. Sastry Ph.D.

Chief Research Officer

[email protected]

C.M.P: Target Price:Rs. 2827.40 Rs. 3167.00

Share Holding Pattern

April 26, 2010



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Peer Group Comparison

Name of thecompany

CMP(As on April26, 2010)

Market Cap.(Rs. Mn.)

EPS(Rs.)

P/E(x)

P/BV(x) Dividend (%)

HDFC FINANCE 2827.40 808,240.56 91.71 30.83 6.12 300.00

LIC HOUSING 902.65 85,690.90 63.86 14.13 3.82 130.00

GRUH FINANCE 251.00 8,716.00 16.89 14.86 3.94 48.00

DEWAN FINANCE 234.85 19,263.90 16.55 14.19 4.05 25.00

Investment Highlights

• Q3 FY10 Results Update

HDFC Ltd disclosed a rise in standalone net profit for the quarter ended December

2009. During the quarter, the profit of the company rose 22.75% to Rs 6712.50

million from Rs 5468.30 million in the same quarter last year.

Net sales for the quarter for the quarter decreased 5.51% to Rs 27569.50 million,

while total income for the quarter decreased 5.56% to Rs 27622.10 million, when

compared with the prior year period. During the quarter, it reported earnings of Rs

23.48 a share.

Quarterly Results - Standalone (Rs in mn)

As at Dec - 09 Dec - 08 %Change

Net Sales 27569.50 29177.70 (5.51)

Net Profit 6712.50 5468.30 22.75

Basic EPS 23.48 19.22 22.15





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RESOURCES

As at December 31, 2009, deposits stood at Rs. 21,979 crore as against Rs. 17,551crore on the corresponding date last year. During the nine-month period endingDecember 31, 2009, deposits accounted for 49% of the incremental borrowing of theCorporation. HDFC’s deposits carry a “AAA” rating from both, CRISIL and ICRA.

During the nine-month period of the current financial year, loans drawn fromcommercial Banks, financial institutions and the National Housing Bank amounted toRs. 21,852 crore.

DISTRIBUTION NETWORK

HDFC’s distribution network spans 271 outlets, which include 57 offices of HDFC’sdistribution company, HDFC Sales Private Limited (HSPL). In addition, HDFC coversover 2,400 locations through its outreach programmes. Distribution channels form anintegral part of the distribution network with home loans being distributed throughHSPL, HDFC Bank Limited and other third party selling associates. To cater to non-

resident Indians, HDFC has an office in London, Dubai and Singapore and serviceassociates in Kuwait, Oman, Qatar, Sharjah, Abu Dhabi, Al Khobar, Jeddah andRiyadh in the Gulf region.

• Allotment of shares pursuant to conversion of FCCBs

Housing Development Finance Corporation Ltd (HDFC) has allotted 1,31,239 equity shares of Rs. 10 each pursuant to conversion of FCCBs. Post the above allotment,the paid-up equity share capital of the Corporation would stand at Rs.287,32,77,060.00 consisting of 28,73,27,706 equity shares of Rs. 10 each.

• Unveils second version of special home loan scheme

Buoyed by the success of its first dual rate product, the country's largest mortgagelender -- Housing Development Finance Corporation (HDFC) -- has now come upwith a second version of the same scheme. The corporation has launched a specialhome loan product under which it will charge interest at a fixed rate of 8.25% perannum (p.a.) up to March 31, 2011; 9% for the period between April 01, 2011 andMarch 31, 2012 and the applicable floating rate for the balance term.

The fixed rates will be applicable for all new loans irrespective of the loan amount.On the other hand, floating rates will have two categories - loans up to Rs 30 lakhat 9% and above Rs 30 lakh at 9.25%. Meanwhile, the existing floating rateproduct will continue without any change where the rates applicable are 8.75% forloans up to Rs 30 lakh, 9% for loans between Rs 30 lakh and Rs 50 lakh and9.25% for loans of Rs 50 lakh and above.



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To avail benefits of this scheme, home loan buyers need to apply before April 30,2010 and take at least part disbursement before June 30, 2010. Besides this, thecustomers whose loans are fully undisbursed as of April 14 can also switch to thisproduct without any conversion fees. Further, NRI, PIO and self employedcustomers will also be eligible for applying under this scheme.

• ICRA assigns “LAAA” rating

Housing Development Finance Corporation (HDFC) has received a 'LAAA' ratingfrom credit rating agency ICRA for its Rs 25,000 crore Non Convertible Debenture(NCD) programme.

• CRISIL assigns “AAA/Stable” rating

Housing Development Finance Corporation (HDFC) has received 'AAA/Stable'rating from credit rating agency CRISIL for its Rs 25,000 crore non-convertibledebenture programme. Further, the rating agency has reaffirmed ratings on thecompany's other outstanding debt instruments and fixed deposit programme at'AAA/FAAA/Stable/P1+'.

The ratings continue to reflect HDFC's sound track record, leading marketposition, strong asset quality and diversified and stable resource base. The ratingsalso factor in HDFC's healthy capitalization and profitability. These ratingsstrengths are partially offset by HDFC's exposure to increasing competition in thehousing finance segment.

• Allotment of shares under ESOS

Housing Development Finance Corporation Ltd (HDFC) has allotted 30,000 equity

shares of Rs. 10 each pursuant to exercise of stock options by employees. Post theabove allotment, the paid-up equity share capital of the Corporation would stand atRs. 287,14,02,220.00 consisting of 28,71,40,222 equity shares of Rs. 10 each.

• Subscribes preferential offer

Housing Development Finance Corporation Ltd (HDFC) has subscribed to thepreferential offer of 2,62,00,220 Warrants convertible into 2,62,00,220 equity shares of Rs. 10 each of HDFC Bank Ltd (HDFC Bank) at a price of Rs. 1530.13 perequity share, in accordance with Chapter XIII of SEBI (Disclosure and InvestorProtection) Guidelines, 2000. In this connection, the Corporation has exercised itsright to convert the said 2,62,00,220 Warrants into 2,62,00,220 equity shares of Rs.

10 each of HDFC Bank and has remitted an amount of Rs. 3,608.06 crores beingthe balance 90% of the subscription amount, in respect thereof.



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• Acquires stake in Credila Ltd

Housing Development Finance Corporation Ltd (HDFC) has agreed to acquireapproximately 41% in the fully diluted equity share capital of Credila FinancialServices Pvt. Ltd. from DSP Merrill Lynch Capital Ltd., subject to compliance withapplicable regulations.

Company Profile

Founder and Chairman-Emeritus Hasmukhbhai started Housing DevelopmentFinance Corporation Ltd. It was his vision for mortgage finance for housing that gavebirth to the Housing Development Finance Corporation - it was a trend-setter forhousing finance in the whole Asian continent. HDFC was incorporated on October17, 1977 with the primary objective of meeting a social need - that of promoting homeownership by providing long-term finance to households for their housing needs.HDFC was promoted with an initial share capital of Rs. 100 million.

HDFC is a professionally managed organisation with a board of directors consistingof eminent persons who represent various fields including finance, taxation,construction and urban policy & development. HDFC's distribution network spansacross 271 outlets and that include 57 offices of HDFC's distribution company,HDFC Sales Private Limited. In addition, HDFC covers over 90 locations through itsoutreach programmes.

Today, nearly three million satisfied customers whose dream they helped realise,stand testimony to their success. Their objective, from the beginning, has been toenhance residential housing stock and promote home ownership. Now, their offeringsrange from hassle-free home loans and deposit products, to property related services

and a training facility. They also offer specialized financial services to their customerbase through partnerships with some of the best financial institutions worldwide.

HDFC has instituted well-defined service standards for both depositors and depositagents. HDFC has been able to mobilize deposits from over 10 lac depositors.Outstanding deposits grew from Rs. 1,458 crores in March 1994 to 19,359 crores inMarch 2009. Much of this success can be attributed to its strong brand image,superior services, security and above all, the significant contribution made by HDFC's deposit agents. HDFC has over 15,000 deposit agents and distributes all itsretail savings (deposit) products primarily through this channel.

The company’s overseas branches are situated at:

• Kuwait

• Qatar



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• Saudi Arabia

• Singapore

• Sultanate of Oman

• UAE

• United Kingdom

Subsidiaries and associate Companies

• HDFC Bank• HDFC Mutual Fund

• HDFC Standard Life Insurance Company

• HDFC Sales

• HDFC ERGO General Insurance Company ltd ( formerly HDFC General

Insurance Company Ltd)

Other Companies Co-Promoted by HDFC

• HDFC Trustee Company Ltd.

• GRUH Finance Ltd.

• HDFC Developers Ltd.

• HDFC Property Ventures Ltd.

• HDFC Ventures Trustee Company Ltd.

• HDFC Investments Ltd.

• HDFC Holdings Ltd.

• Credit Information Bureau (India) Ltd

Company Services

Services offered by the company:

a) Home Loans Home Loans for NRI Existing Loan Customers

• Home Improvement Loans

• Home Extension Loans

• Home Conversion Loans

• Top - Up Loans

b) Property Services

• Property identification and sales service

• Property valuations

c) Deposits



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Financial Results

12 months ended Profit & Loss A/C (Standalone)

Value(Rs. in million) FY08 FY09 FY10E FY11E

Description 12m 12m 12m 12m

Net Sales 81763.50 109695.60 113170.37 124487.41

Other Income 197.10 228.70 723.63 361.82

Total Income 81960.60 109924.30 113894.00 124849.22

Expenditure -48059.60 -3234.80 -3972.23 -4357.06

Operating Profit 33901.00 106689.50 109921.77 120492.16

Interest 0.00 -74324.50 -72418.55 -76039.47

Gross Profit 33901.00 32365.00 37503.23 44452.69

Depreciation -166.00 -174.60 -175.00 -183.75

Profit before Tax 33735.00 32190.40 37328.23 44268.94

Tax -9372.50 -9365.00 -10748.14 -12837.99

Profit after Tax 24362.50 22825.40 26580.09 31430.95

Equity Capital 2840.40 2844.50 2858.60 2858.60

Reserves 116633.10 128529.40 155109.49 186540.44

Face Value (Rs) 10.00 10.00 10.00 10.00

Total No. of Shares 284.04 284.45 285.86 285.86

EPS (Rs) 85.77 80.24 92.98 109.95



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Quarterly ended Profit & Loss A/C (Standalone)

Value(Rs. in million) 30-Jun-09 30-Sep-09 31-Dec-09 31-Mar-10E

Description 3m 3m 3m 3m

Net Sales 27928.90 28448.30 27569.50 29223.67

Other Income 561.80 54.00 52.60 55.23

Total Income 28490.70 28502.30 27622.10 29278.90

Expenditure -1023.80 -963.20 -962.40 -1022.83

Operating Profit 27466.90 27539.10 26659.70 28256.07

Interest -19628.00 -18365.10 -17042.30 -17383.15

Gross Profit 7838.90 9174.00 9617.40 10872.93

Depreciation -39.70 -44.60 -44.90 -45.80

Profit before Tax 7799.20 9129.40 9572.50 10827.13

Tax -2150.00 -2490.00 -2860.00 -3248.14

Profit after Tax 5649.20 6639.40 6712.50 7578.99

Equity Capital 2845.60 2849.00 2858.60 2858.60

Face Value (Rs) 10.00 10.00 10.00 10.00

Total No. of Shares 284.56 284.90 285.86 285.86

EPS (Rs) 19.85 23.30 23.48 26.51



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Key Ratios

Particulars 2008(A) 2009(A) 2010(E) 2011(E)

EBITDA Margin (%) 41.46% 97.26% 97.13% 96.79%

PAT Margin (%) 29.80% 20.81% 23.49% 25.25%

P/E (x) 32.96 35.24 30.41 25.71

ROE (%) 20.39% 17.37% 16.83% 16.60%

ROCE (%) 4.16% 10.98% 10.16% 9.99%

EV/EBITDA (x) 23.69 7.54 7.35 6.71

Debt Equity Ratio (x) 5.79 6.38 5.84 5.36

Book value (Rs) 420.62 461.85 552.61 662.56

P/BV (x) 6.72 6.12 5.12 4.27

A-Actual E-Expected

Charts

1. Net Sales & PAT



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2. P/E Ratio

3. P/BV



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4. EV/EBITDA

Valuation

• At the market price of Rs.2827.40, the stock trades at 30.41x and 25.71x for theearnings of FY10E and FY11E respectively.

• Price to Book Value of the stock is expected to be at 5.12x and 4.27x respectively for FY10E and FY11E.

• Earning per share (EPS) of the bank for the earnings of FY10E and FY11E is seen

at Rs.92.98 and Rs.109.95 respectively for equity share of Rs.10.00 each.

• Net Sales of the company is expected to grow at a CAGR of 15% over FY08 toFY11E.

• As at December 31, 2009, the total assets of HDFC stood at Rs. 1,04,560 crore asagainst Rs. 95,112 crore as at December 31, 2008 – an increase of 10%.

• As at December 31, 2009, the loan book stood at Rs. 90,410 crore.

• The HDFC has launched a special home loan product under which it will chargeinterest at a fixed rate of 8.25% per annum (p.a.) up to March 31, 2011.

• HDFC has allotted 1,31,239 equity shares of Rs. 10 each pursuant to conversion of FCCBs.

• HDFC has agreed to acquire approximately 41% in the fully diluted equity sharecapital of Credila Financial Services Pvt. Ltd. from DSP Merrill Lynch Capital Ltd.



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• We recommend ‘BUY’ in this particular scrip with a target price of Rs.3167.00 forMedium to Long term investment.

Industry Overview

The Indian economy is estimated to have grown by 6.7 per cent in 2008-09. According

to the latest Central Statistical Organisation (CSO) data, financial services, banking,insurance and real estate sectors rose by 7.8 per cent in the third quarter of 2009-10.

The government has taken a number of steps in recent months to revive the economy,

including slashing interest rates, lowering factory levies and more than doubling the

limit on foreign investment in corporate bonds. The financial services space is a

rapidly growing one in India.

As per the Securities and Exchange Board of India (SEBI), number of registered FIIs as

on March 29, 2010 was 1710 and the cumulative investments in equity since

November 1992 to March 29, 2010, was US$ 76.74 billion, while the cumulative

investments in debt during the same period were US$ 11.85 billion.

The average assets under management of the mutual fund industry stood at US$

174.06 billion for the month of February 2010, an increase of nearly 36 per cent from

US$ 111.55 billion in February 2009, according to the data released by Association of

Mutual Funds in India (AMFI).

Funds raised by the Indian corporate sector via ADRs/ GDRs has jumped over 33

times from around US$ 101.72 million in 2008 to about US$ 3.50 billion in 2009.

Furthermore, with economic outlook on Indian as well global markets being positive,PE funds are closing deals more speedily than last year. The merger and acquisition

(M&A) activity has shown similar momentum, with domestic deals ruling the charts.

PE funds closed 29 deals in January 2010 compared to only 16 during the same

period last year. The value of such deals saw a significant jump of 303 per cent, from

US$ 309 million in January 2009 to US$ 1.24 billion this year.

Also, a study by Project Finance International (PFI), a source of global project finance

intelligence and a Thomson Reuters publication has ranked India on top in the global

project finance (PF) market in 2009, ahead of Australia, Spain and the US.

The study said the main market for PF in 2009 was the domestic Indian market,

which raised US$ 30 billion, accounting for 21.5 per cent of the global PF market. This

was up from US$ 19 billion in 2008.



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The country's foreign exchange reserves were US$ 278.19 billion as on March 19,

2010, according to the figures released in the Reserve Bank of India's Weekly

Statistical Supplement.

The World Bank and India have concluded negotiations for loans worth US$ 3.2 billion

for recapitalizing state-run banks and funding for the India Infrastructure Finance

Company Ltd.

Qualified Institutional Placements (QIPs)

QIP is a capital raising tool, whereby a listed company can issue equity shares, fully

and partly convertible debentures, or securities other than warrants, which are

convertible into equity shares, to a qualified institutional buyer (QIB).

In 2009, Indian companies had raised close to US$ 7.18 billion by way of 45 QIP

issuances.

Stock markets

India's market capitalization (m-cap) touched US$ 1.04 trillion in June 2009 making it

the ninth largest in the world.

According to data from Bloomberg, India's market cap as a percentage of world market

cap was 2.8 per cent as on December 31, 2009.

In 2009, there were 21 IPOs that raised US$ 4.25 billion as compared to 36 IPOs in

2008 that raised US$ 3.68 billion.

Moreover, on the back of an increase in the participation of agriculture and other

commodities, the 23 commodity exchanges posted 50 per cent year-on-year growth inturnover in the April-February period of the current fiscal, to touch US$ 1.53 trillion,

according to the commodity markets regulator, Forward Markets Commission (FMC).

According to data collated by international stock market research firm Bespoke

Investment Group, India has the best PEG multiple (price earnings-to-growth)

amongst several emerging and developed markets. At over 26 times trailing P/E

multiple and an estimated 2010 GDP growth rate of 8 per cent, India (denoted using

Sensex) commands a rather comfortable PEG multiple of 3.27 times.

Insurance

India is the fifth largest life insurance market in the emerging insurance economies

globally and the segment is growing at a healthy 32-34 per cent annually.



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According to a report by research firm RNCOS—'Booming Insurance Market in India

(2008-2011)'—the total life insurance premium in India is projected to grow to US$

259.72 billion by 2010-11. Life Insurance Corporation (LIC) is bullish on growth and is

targetting business in excess of US$ 59.14 billion by 2011-12.

The government is planning to ease restrictions on foreign investments in insurance,

banking and pensions, and allow foreign direct investment (FDI) of 49 per cent from

the present 26 per cent.

The 'Mallassurance' delivery channel is first of its kind in India's insurance sector,

selling life and general insurance policies through all Future Group retail outlets

across the country. For Future Generali Insurance, a sizeable chunk of their

customers now comes through the Mallassurance route.

Online sales take place through two major channels through direct sales by the

insurers and through online insurance portals which offer a range of products from

various insurers. The most active insurers online are ICICI Lombard, Bajaj Allianz etc.

Banking services

During 2008-09, State Bank of India (SBI) and associate banks advanced US$ 16.8billion for infrastructure projects such as power plants and petroleum refineries. Thebig-sized credits have made SBI and group one of the largest project financiers in thecountry. Finance Minister, Mr Pranab Mukherjee urged a doubling of infrastructurespending to US$ 1 trillion in the 12th Plan and said financial entities or banks will beauthorised to issue infrastructure bonds for raising money for specific lending forinfrastructure activity.

________________ ____ ________________________Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation

for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but do not represent that it is accurate or complete and it

should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’saffiliates shall not be in any way responsible for any loss or damage that may arise to any

person from any inadvertent error in the information contained in this report. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.



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Firstcall India Equity Research: Email – [email protected]

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Firstcall India Equity Advisors Pvt.Ltd focuses on, IPO’s, QIP’s, F.P.O’s,Takeover

Offers, Offer for Sale and Buy Back Offerings.

Corporate Finance Offerings include Foreign Currency Loan Syndications,

Placement of Equity / Debt with multilateral organizations, Short Term Funds

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Corporate Advisory Offerings include Mergers & Acquisitions(domestic and

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