Rating matrix HDFC Ltd (HDFC) - content.icicidirect.comcontent.icicidirect.com/mailimages/IDirect_HDFCLtd_Q2FY16.pdf · Healthy growth trend in advances to continue HDFC Ltd is the

October 27, 2015

ICICI Securities Ltd | Retail Equity Research

Result Update

Growth, margins to be watched ahead… • Standalone PAT came in at | 1605 crore, up 18.2% YoY, driven by

dividend income that was at | 425 crore vs. | 104 crore in Q2FY15. Generally, this dividend income (mainly from HDFC Bank) is recorded in Q1. However, this time, it was received in Q2

• NII growth was below expectation at 7.9% YoY to | 1924 crore largely due to lower-than-expected growth of 12% YoY to | 237991 crore in advances. Reported margins were at 3.95%

• Asset quality was steady as expected. GNPA ratio was at 0.71% while absolute GNPA increased by | 98 crore QoQ to | 1707 crore

Healthy growth trend in advances to continue HDFC Ltd is the first specialised housing finance company (HFC) in India and also the largest. Including banks, it is second after the leading PSU bank with a market share of ~16% (on an individual loan basis). Its total outstanding loan book is | 237991 crore as on Q2FY16 of which individual loans account for 70% while the corporate proportion has declined to 30% from 36% in FY12. HDFC has witnessed healthy traction of 18% CAGR in the past four years compared to industry CAGR of 16% mainly driven by the individual loan segment. The company has been able to maintain its leading position despite a challenging macro environment. This is owing to its unique strengths such as a strong franchise, brand pedigree, in-house model, large network and a dedicated business. We have slightly lowered our loan growth expectation to 16.6% CAGR in FY15-17E to | 309412 crore. Flexible borrowing profile enables stability in spreads HDFC has a healthy track record of sustaining spreads and NIMs above 2% and 3.5%, respectively, across volatile interest rate cycles. The key reasons are a flexible borrowing profile, higher credit rating and stable asset liability management (ALM). Also, it earns ~1.3% spread on loans sold to banks (| 12969 crore loans sold in the last year). We expect NIMs (calculated) of ~3.4% with reported spreads maintained between 2.25% and 2.3% over the next two years. Resilient asset quality to continue HDFC has one of the best asset quality parameters in the industry. Its GNPA as on Q2FY16 is 0.7% while NNPA was nil on account of 100% provision coverage ratio. The credit cost as on FY15 was 0.08%, which was lowest among industry peers. Exposure to real estate developers (~12% of total loan portfolio) is backed by collateral of 2.0x loan size. We expect asset quality to remain resilient with adequate provision coverage. It carries excess provision of | 330 crore over regulatory requirement. Healthy operational performance provides comfort; maintain BUY HDFC has commanded premium valuations over the years due to its consistent track record in earnings and business growth. Return ratios have remained healthy across economic cycles with RoE >20% and RoA >2.5%. We expect this to be maintained in FY15-17E. The consolidated PAT as on FY15 was at | 8763 crore with subsidiaries contributing 32%. Even consolidated RoEs have been healthy at ~21%. We have tweaked our earnings estimates slightly lower as we factor in moderation in credit traction & margins. However, we maintain our SOTP based target price of | 1410 and BUY recommendation on the stock.

Rating matrix Rating BuyTarget | 1410Target Period 12 monthsPotential Upside 11%

What’s Changed? Target UnchangedEPS FY16E Changed from | 44.7 to | 42.7EPS FY17E Changed from | 51.1 to | 50.2Rating Unchanged

Quarterly Performance

Q2FY16 Q2FY15 YoY (%) Q1FY16 QoQ (%)NII 1,924 1,783 7.9 1,957 -1.7Other income 639 414 54.4 247 158.3PPP 2,376 2,016 17.8 2,002 18.7PAT 1,605 1,357 18.2 1,361 17.9

Key Financials | crore FY14 FY15E FY16E FY17ENII 6,666 7,631 8,666 10,051

PPP 7,540 8,789 9,771 11,404 PAT 5,440 5,990 6,717 7,905

Valuation summary

FY14 FY15E FY16E FY17EP/E 36.6 33.6 29.9 25.4

Target P/E 40.4 37.1 33.1 28.1P/ABV 7.3 6.6 6.0 5.4Target P/ABV 8.1 7.3 6.6 5.9RoA 2.6 2.5 2.5 2.5RoE 20.6 20.3 20.7 22.0 Stock data Market Capitalisation | 201447 crore GNPA (Q2FY16) | 1707 crore NNPA (Q2FY16) Nil NIM (Q2FY16) (reported) 3.95 52 week H/L 1400 /1030 Equity capital | 315 crore Face value | 2 DII Holding (%) 9.9 FII Holding (%) 78.2 Price performance (%)

1M 3M 6M 12MHDFC LTD 14.7 -0.9 4.8 29.7LIC Housing Finance 10.5 -3.2 8.6 40.1Dewan Housing Fin. 13.2 -2.9 2.4 26.3

HDFC Ltd (HDFC) | 1275

Research Analyst

Kajal Gandhi [email protected]

Vasant Lohiya [email protected] Vishal Narnolia [email protected]

ICICI Securities Ltd | Retail Equity Research Page 2

Variance analysis Q2FY16 Q2FY16E Q2FY15 YoY (%) Q1FY16 QoQ (%) Comments

NII 1,924 2,138 1,783 7.9 1,957 -1.7 NII traction was below estimates largely due to slower credit growth at 12.1% YoY.

NIM (%) 4.0 3.9 4.0 -5 bps 3.8 15 bpsThe spread was also maintained at ~2.30%. Spread on individual loans were flat QoQ at 1.97% while in the developer portfolio the spread improved 4 bps QoQ to 3.1%

Other Income 639 608 414 54.4 247 158.3Other income traction was strong at 54.4% YoY to | 639 crore led by dividend income. Profit on sale of investments was at | 48 crore vs. | 103 crore last year

Net Total Income 2,563 2,746 2,197 16.7 2,205 16.2Staff cost 81 103 79 2.6 93 -13.4Other Operating Expenses 106 132 102 4.7 109 -2.9

PPP 2,376 2,512 2,016 17.8 2,002 18.7Healthy operational performance with PPP increasing 18% YoY. Cost to income ratio best in class at 7.3%

Provision 52 55 35 48.6 50 4.0PBT 2,324 2,457 1,981 17.3 1,952 19.0

Tax Outgo 719 786 624 15.2 591 21.7Provision for taxation includes provision for DTL on special reserve of | 83 crore. The company has provided | 365 crore in FY15 for DTL on special reserve

PAT 1,605 1,670 1,357 18.2 1,361 17.9

Key Metrics

GNPA 1,707 1,650 1,472 16.0 1,609 6.1

The absolute increase in GNPA QoQ was at | 98 crore. The GNPA ratio remained stable sequentially at 0.7%. In individual loans, the GNPA ratio was steady QoQ at 0.53% while in non-individual segment it witnessed some pressure and was at 1.12% vs. 1.04% seen in Q1FY16

NNPA 0 0 NM 0 NM

Source: Company, ICICIdirect.com Research Change in estimates

(| Crore) Old New % Change Old New % Change CommentsNet Interest Income 8,836 8,666 -1.9 10,069 10,051 -0.2 NII estimates lowered as we factor in moderation in margins & credit growthPre Provision Profit 10,231 9,771 -4.5 11,616 11,404 -1.8NIM(%) (calculated) 3.5 3.4 -7 bps 3.4 3.4 2 bps Competitive pressures to impact marginsPAT 7,039 6,717 -4.6 8,055 7,905 -1.9 PAT estimates lowered due to decline in core earningsABV per share (|) 215.6 213.2 -1.1 240.1 237.8 -1.0

FY16E FY17E

Source: Company, ICICIdirect.com Research Assumptions

FY14 FY15E FY16E FY17E FY16E FY17ECredit growth (%) 15.9 15.8 16.1 17.0 17.6 15.7NIM Calculated (%) 3.5 3.5 3.4 3.4 3.5 3.4Cost to income ratio (%) 7.7 7.4 7.5 7.1 7.1 6.9GNPA (| crore) 1,357 1,542 1,841 2,186 1,849 2,196NNPA (| crore) 0.0 0.0 0.0 0.0 0.0 0.0

Current Earlier

Source: Company, ICICIdirect.com Research


Company Analysis Advances growth above industry despite high base; expect to be maintained

HDFC, the largest HFC, has witnessed healthy loan traction of 20% CAGR since FY07, which has been ahead of industry CAGR of ~15%. It should be noted that HDFC has been able to maintain such a healthy growth on a higher base. This is owing to its unique strengths such as strong franchise, brand pedigree, in-house model (sources ~83% of loans in-house), large network, dedicated business & experienced management. HDFC’s total advances as on Q2FY16 were at | 237991 crore with individual loans amounting to | 165619 crore or 69.6% of total advances. Its market share including banks is ~15%, which is second highest after the leading PSU bank. We believe the major drivers for the housing finance industry such as a large population with a favourable demographic profile, increasing urbanisation, nuclearisation of families, demand-supply mismatch, etc. remain intact. However, owing to a weak economic environment in the past few years the growth of the industry has moderated. We believe, going ahead, HDFC being the market leader will continue to grow at a healthy pace of 16.6% CAGR over FY15-17E to | 309412 crore and maintain its market share. Exhibit 1: Ahead of industry growth expected to continue

116,

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Loan Outstanding Growth (YoY) (RHS)


In the past four years, the major driver has been the individual loan book, which grew at 21% CAGR vs. 13% seen in the corporate book. This is owing to a strained economic environment leading to a weak investment cycle. Further, risks in the corporate portfolio also increased, leading the company to focus more on the relatively lower defaulting individual loan portfolio. In FY15, 78% of the incremental | 39330 crore of loans was towards the retail book. Going ahead, we have factored in ~17% CAGR over FY15-17E for both portfolios. However, any improvement in the economic scenario could result into higher than estimated growth in case of the corporate portfolio.

We believe, going ahead, HDFC being the market leader

will continue to grow at a healthy pace of 16.6% CAGR in

FY15-17E to | 309412 crore and maintain its market share


Exhibit 2: Individual segment traction continues to pick-up since Q4FY15

62.6 63.1 63.2 65.6 67.8 68.1 68.4 69.2 68.4 69.0 69.6 68.9 69.5

35.8 36.1 35.7 33.6 31.4 30.8 30.4 29.6 30.4 29.6 29.1 29.6 29.0

1.6 1.1 1.4 1.0 1.1 1.1 1.2 1.2 1.5 1.4 1.3 1.5 1.5

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Individual Corporate others


Flexible borrowing profile enables stability in spreads & margins

HDFC’s sources of funding at | 218899 crore, as on Q2FY16, are well diversified and include bank loans (11% of total borrowing), bonds & commercial paper (55%) and deposits (34%). The company, owing to its brand, higher credit rating and sound track record of timely repayments has the ability to immediately change its borrowings mix profile to suit its need and take advantage of the prevailing market conditions. For instance, during Q2FY14, when wholesale rates increased to ~12% after the RBI’s measure to stem rupee depreciation, the company immediately increased its funding via bank loans to 19% vs. 8% in the previous quarter as the average base rate was around 10.25-10.5%. Such flexibility in the funding profile enables HDFC to maintain a healthy track record of sustaining spreads & NIMs above 2% and 3.5%, respectively, across volatile interest rate cycles. Further, it earns ~1.3% spread on loans sold to banks (| 12969 crore loans sold in past one year). We expect NIMs (calculated) at ~3.4% with reported spreads maintained between 2.25% and 2.3%. Any major decline in wholesale rates, going ahead, will lead to higher-than-expected margins over FY15-17E. Exhibit 3: Diversified borrowing profile

33.3 36.9 29.311.2 16.9 15.9 12.6 11.2 11.7 9.4 10.8 11.4 11.3

42.8 42.044.7

56.1 52.3 52.3 56.0 56.4 56.7 57.2 55.3 55.3 54.3

23.9 21.1 26.1 32.7 30.8 31.8 31.4 32.4 31.7 33.4 33.9 33.3 34.4

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Term loans Bonds and deb deposits


We expect NIMs (calculated) at ~3.4% with reported

spreads maintained between 2.25% and 2.3%. Any major

decline in wholesale rates, going ahead, will lead to higher-

than-expected margins over FY15-17E


Exhibit 4: Margins expected to be hit by competitive pressures, going ahead

3.90

3.613.51

3.833.76

3.70

3.52 3.493.43 3.42

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3.33.43.5

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3.94.0

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E

(%)

NIM (calculated)


Resilience on asset quality front to sustain

HDFC has one of the best asset quality parameters in the industry considering its large size. The GNPA as on Q2FY16 was at | 1707 crore while NNPA remained nil owing to 100% provision coverage ratio. The GNPA ratio at 0.7% as on Q2FY16 is lower than industry ratio of >0.8%. Credit cost at 0.08% is lowest in the industry. The major reasons for such a benign asset quality have been HDFC’s conservative lending policies, which enable it to avoid customers defaulting on loans. On an average, it lends only up to 66% of the assessed value of a property/asset. Other reasons include preventing aggressive loan growth or going for higher market share, 90% of individual portfolio belonging to salaried class wherein the default is lower. Further, exposure to real estate developers (12% of the total loan portfolio) is backed by collateral of 2.0x the loan size. We expect the asset quality to remain healthy, going forward, with GNPA maintained in the range of 0.7-0.8% and nil NNPA. However, we have factored in a slightly higher credit cost of 0.1% over FY15-17E. Exhibit 5: Asset quality managed well; outlook remains steady

0.760.71 0.69 0.7 0.69 0.69 0.68 0.69 0.71 0.70 0.71

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.000.0

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GNPA NNPA


We expect the asset quality to stay healthy, going forward,

with GNPA maintained in the range of 0.7-0.8% and nil

NNPA. However, we have factored in slightly higher credit

cost of 0.1% over FY15-17E


Exhibit 6: Credit cost lower compared to peers

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Credit cost


Best in class operating efficiency

HDFC has the best operating efficiency in the industry with cost-to income ratio at 7.6% as on FY15. Its peers like LIC Housing Finance and Dewan Housing Finance have a cost-to-income ratio of 14% and ~40%, respectively. This is mainly due to the in-house sourcing model of HDFC compared to the DSA based model (90%) of LIC Housing Finance and branch based model of Dewan Housing Finance. Further, the lower employee base of HDFC (~1956 as on FY14), as compared to other HFCs and banks, enables the company to maintain such low ratios. We expect HDFC to maintain such operating efficiency, going ahead. Exhibit 7: Operating efficiency unmatchable

7.9 7.7 7.29 7.43 7.69 8.03 8.21 8.077.44

9.20

7.30 7.45 7.06

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Cost-to-Income ratio



Exhibit 8: Sources 82% of loan in-house

Other DSAs18%

Direct Walk-ins12%

HDFC Bank24%

HDFC Sales Pvt Ltd46%


Performance of subsidiaries

The consolidated earnings for FY15 stood at | 8763 crore vs. | 7948 crore for FY14, which was an increase of 10.3% YoY. The share of profit from subsidiary and associate companies in consolidated profit was steady YoY at 32% in FY15. During Q2FY16, consolidated profit was at | 2107 crore, up 2% YoY. Its four major subsidiaries include HDFC Life, HDFC Ergo, HDFC AMC and Gruh Finance. HDFC Life, which is 71.4% owned by HDFC Ltd and 26% by Standard Life, is third in the private market share in FY15. Its individual business market share is 14.9% (private sector) and 7.1% (overall). The HDFC group network is used to cross-sell by offering customised products. The company reported a PAT of | 786 crore for FY15 vs. | 725 crore in the previous year. HDFC Ergo is the general insurance subsidiary of HDFC Ltd, which has 73.6% while balance 25.9% is owned by Ergo. It is the fourth largest private player in the general insurance industry with market share of 8.5% in the private sector space while overall its market share is 4% in terms of gross direct premium. As in case of HDFC Life, the HDFC group network is used to cross-sell home, health and other insurance products. Earnings for FY15 stood at | 104 crore vs. | 195 crore in the previous year. Lower profits during the year were mainly on account of the impact of natural catastrophes such as the Jammu & Kashmir floods, Cyclone Hudhud and Cyclone Phailin and due to a change in the depreciation policy, aligning it with the Companies Act, 2013. Gross direct premium in FY15 was | 3256 crore vs. | 2978 crore in FY14. HDFC AMC is a tie-up with Standard Life Investments. HDFC holds 59.8% of HDFC AMC. HDFC Mutual Fund manages 55 debt, equity, exchange traded and fund of fund schemes. The average AUM during the March 2015 stood at | 167161 crore. Equity assets comprise 43% of the total mutual fund assets. HDFC Mutual Fund ranked first in the industry on the basis of quarterly average assets under management for FY15. For FY15, HDFC AMC reported PAT of | 416 crore vs. | 358 crore in the previous year.

The share of profit from subsidiary & associate companies

in the consolidated profit was steady YoY at 32% in FY15


Insurance bill passed; value unlocking to enhance valuations In March 2015, the Parliament passed the Insurance Bill, which enables a hike in FDI limit from 26% to 49%. In the longer term, the approval has opened windows both for fresh foreign capital raising and value unlocking by stake sale. The act also provides larger rights to IRDA, including allowing M&A among players. With FDI getting opened up, the valuation multiple for the sector can see upsides with banks and NBFCs clocking capital gains on sale. Value unlocking holds key as larger players can come out with IPOs or enter private placements similar to what has already happened. First right in most companies will be with their foreign partners, in which case strong premium, which could have arisen on account of the new entrant’s entry premium may not be seen. For HDFC, the life insurance and general insurance businesses contribute 5% and 1%, respectively, to its FY17E SoTP valuation. Together they can generate | 3540 crore on a market cap of ~| 200000 crore. As per recent news articles, HDFC Standard Life is planning to raise | 2,400 crore via sale of 10% stake to the public. HDFC currently holds a 71.4% stake in the venture while 26% is held by Standard Life (Mauritius Holding). Last December, the Azim Premji Trust purchased a 0.95% stake in HDFC Standard Life for | 199 crore, valuing it at | 18,000 crore. Further in August, 2015, it was indicated that, that HDFC will sell a 9% stake to British partner Standard Life for | 1705 crore (valuing the company at | 18,951.4 crore), which will see its stake rise to 35%. Standard Life will not sell shares in the IPO. Exhibit 9: Life insurance business performance (HDFC) HDFC Std Life FY14 9MFY15

NBP (| crore) 4,039 2,066

Regular premium (| crore) 8,024 NA

Total Premium (| crore) 12,063 NA

NBAP Margin (%) 26 21

PAT (| crore) 730 575 Source: Company, ICICIdirect.com Research

We have conservatively estimated HDFC Standard Life’s value in our SOTP calculation. In case the IPO or stake sale happens as stated above, then that would be ~15-20% higher than our estimates, which could provide an upside risk to our SoTP based target price. Exhibit 10: Insurance subsidiaries contribution to HDFC’s SoTP based valuation

Total Market Vaue (| crore) Stake(%)

stake Value (| crore)

Value per share (|)

% of SoTP

Funds from stake if only 51% maintained

HDFC LTD HDFC Std Life 15,410 71 11,003 71 5 3,144 HDFC ERGO 1,755 74 1,292 7 1 397



Exhibit 11: Quarterly consolidated profit analysis Particulars Q2FY16 Q1FY16 Q4FY15 Q3FY15 Q2FY15Revenues YoY QoQRevenue from Operations 12724 11546 14988 12103 11784 8 10 Housing 7551 7429 7806 7209 6980 8 2 Life Insurance 4258 3220 6114 4057 3984 7 32 General Insurance 502 482 516 508 499 1 4 Asset Management 345 350 479 272 264 31 -1 Others 66 65 72 56 57 16 3 Net Revenue from Operations 12530 11441 14737 11952 11644 8 10

Profit/Loss Before Interest and Tax 2552 2509 3440 2464 2445 4 2 Housing 2106 2043 2767 2142 2058 2 3 Life Insurance 215 253 316 141 184 17 -15 General Insurance 61 35 60 11 36 67 73 Asset Management 173 174 292 169 166 4 -1 Others -3 4 5 1 1 -335 -175PBT 2445 2454 3271 2362 2342 4 0PAT incl associates 2107 2204 2646 2179 2064 2 -4

Growth (%)


Exhibit 12: PAT reported for each subsidiary (| billion)

FY12 FY13 FY14 FY15HDFC Standalone Profit After Tax 41.2 48.5 54.4 59.9HDFC Life 2.0 3.3 4.4 4.5HDFC Ergo -0.3 1.1 1.2 0.4

GRUH 0.5 0.6 0.7 0.8

HDFC Bank 10.0 12.8 16.2 19.2HDFC-AMC 1.0 1.1 1.2 1.3

Others 0.3 -1.0 1.4 1.6Dividend and Other Adjustments

Consolidated Profit After Tax 54.6 66.4 79.5 87.6Adjustment for:

Securities Premium debited in HDFC for Zero Coupon Bonds 4.9 4.4 3.6 4.2Contribution of subs/associates to the consolidated PAT (%) 25.0 27.0 32.0 32.0

Source: Company, ICICIdirect.com Research, *PAT for subsidiaries is after adjustment for dividend


Outlook and valuation HDFC has commanded premium valuations over the years due to its consistent track record in earnings and business growth. Return ratios have remained healthy across economic cycles with RoE >20% and RoA >2.5%. We expect this to be maintained in FY15-17E. The consolidated PAT as on FY15 stood at | 8763 crore with subsidiaries contributing 32%. Even consolidated RoEs have been healthy at ~21%. We have tweaked our earnings estimates slightly lower as we factor in moderation in credit traction & margins. However, we maintain our SOTP based target price of | 1410 and our BUY recommendation on the stock. Exhibit 13: Healthy return ratios expected to be maintained

18.220.0

21.7 22.7 22.120.6 20.3 20.7

22.0

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RoE RoA


Exhibit 14: SOTP valuation Business Segment FY17 |/shareHDFC Ltd 830HDFC Bank 402HDFC AMC 60HDFC Std. Life 71HDFC ERGO 7GRUH Finance 37Unrealised Gains 3Value per share of HDFC 1,410


Exhibit 15: Valuation

NII Growth PAT Growth P/E ABV P/ABV RoA RoE(| cr) (%) (| cr) (%) (x) (|) (x) (%) (%)

FY14 6,666 12.5 5,440 12.2 36.6 175.1 7.3 2.6 20.6 FY15E 7,631 14.5 5,990 10.1 33.6 192.7 6.6 2.5 20.3 FY16E 8,666 13.6 6,717 12.1 29.9 213.2 6.0 2.5 20.7 FY17E 10,051 16.0 6,717 17.7 25.4 237.8 5.4 2.5 22.0



Company snapshot

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200

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Source: Bloomberg, Company, ICICIdirect.com Research

Key events es

Date EventFY03 HDFC Board approves arrangement between HDFC & HDFC Bank wherein HDFC Bank will source housing loans for HDFC in return for a feeFY04 Becomes first private corporate to raise | 1,000 crore debt in a single tranche and in a single optionFY07 HDFC Ltd forges alliance with Germany's Ergo International AG as the new joint venture partner for its general insurance business

FY07 All subsidiaries, AMC, life insurance, etc. get higher valuations, taking the stock to peaks in 2008

FY09 HDFC - Agreement to acquire stake in Credila Ltd (an education finance company)Feb-10 Company splits face value of shares from | 10 to | 2FY11 Launches HDFC Real Estate Destination (HDFC RED), an online real estate portalFeb-12 Housing credit growth continues to be strong at 19-20% and gains size. Banks also enter aggressivelyMay-13 Surpasses previous highs to make life-time high as housing finance, only segment, was growingMay-14 Speculation of announcement of reverse merger with HDFC Bank firms ground but nothing happensOct-15 Raises ~| 5000 crore via debentures and warrants


Top 10 shareholders Shareholding Pattern Rank Name Latest Filing Date % O/S Position (m) Change (m)1 Capital World Investors 30-Sep-15 4.58 72.3 0.52 OppenheimerFunds, Inc. 30-Sep-15 4.28 67.5 (3.5)3 Capital International, Inc. 30-Sep-15 4.17 65.8 0.54 Vontobel Asset Management, Inc. 30-Sep-15 3.06 48.3 (9.3)5 Life Insurance Corporation of India 30-Sep-15 2.79 44.1 1.96 The Vanguard Group, Inc. 30-Sep-15 2.73 43.1 0.17 GIC Private Limited 30-Sep-15 1.79 28.3 3.78 Fidelity Management & Research Company 31-Aug-15 1.76 27.7 0.29 Aberdeen Asset Managers Ltd. 31-Aug-15 1.38 21.7 (3.5)10 Invest AD 30-Sep-15 1.33 20.9 (0.4)

e

(in %) Sep-14 Dec-14 Mar-15 Jun-14 Sep-15Promoter - - - - -FII 77.9 78.5 79.7 78.8 78.2DII 10.3 9.8 8.7 9.5 9.9Others 11.8 11.7 11.6 11.7 12.0

Source: Reuters, ICICIdirect.com Research

Recent Activity

Investor name Value Shares Investor name Value SharesAPG Asset Management 236.56m 11.20m Aberdeen Asset Management (Asia) Ltd. -564.32m -30.48m GIC Private Limited 67.94m 3.67m Carmignac Gestion -445.88m -26.97m BlackRock Asset Management North Asia Limited 53.94m 2.91m BlackRock Institutional Trust Company, N.A. -373.66m -20.18m Life Insurance Corporation of India 36.71m 1.86m Vontobel Asset Management, Inc. -172.88m -9.34m BNP Paribas Investment Partners Asia Ltd. 34.43m 1.74m Mellon Capital Management Corporation -83.20m -4.49m

Buys Sells

Source: Reuters, ICICIdirect.com Research

Target Price : |1410


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Financial summary Profit and loss statement | Crore (Year-end March) FY14 FY15 FY16E FY17EInterest Earned 22,695.0 25,605.8 28,331.9 32,753.6 Interest Expended 16029.4 17975.1 19665.5 22702.9Net Interest Income 6,665.6 7,630.7 8,666.5 10,050.7

% growth 12.5 14.5 13.6 16.0

Non Interest Income 1502.7 1865.1 1891.2 2219.3Net Income 8168.3 9495.8 10557.6 12270.0Employee cost 279.2 328.5 366.2 407.3Other operating Exp. 348.9 378.2 420.6 458.8Operating Income 7540.2 8789.1 9770.8 11403.8Provisions 100.0 165.0 242.7 222.8

PBT 7440.2 8624.1 9528.1 11181.0Taxes 2000.0 2634.0 2810.8 3276.0

Net Profit 5,440.2 5,990.1 6,717.3 7,905.0

% growth 12.2 10.1 12.1 17.7EPS (|) 34.9 38.0 42.7 50.2


Key ratios | Crore (Year-end March) FY14 FY15 FY16E FY17EValuationNo. of Equity Shares 156.1 157.5 157.5 157.5EPS (|) 34.9 38.0 42.7 50.2BV (|) 175.1 192.7 213.2 237.8BV-ADJ (|) 175.1 192.7 213.2 237.8P/E 36.6 33.6 29.9 25.4P/BV 7.3 6.6 6.0 5.4P/adj.BV 7.3 6.6 6.0 5.4Yields & Margins (%)Yield on interest earning assets 12.0 11.7 11.2 11.1Avg. cost on funds 9.4 9.2 8.7 8.7Net Interest Margins 3.5 3.5 3.4 3.4Spreads 2.6 2.6 2.5 2.5Adjusted spreads * 2.3 2.3 2.2 2.2Quality and EfficiencyCost / Total net income 7.7 7.4 7.5 7.1GNPA% 0.7 0.7 0.7 0.7NNPA% 0.0 0.0 0.0 0.0RONW (%) 20.6 20.3 20.7 22.0ROA (%) 2.6 2.5 2.5 2.5

Source: Company, ICICIdirect.com Research *Adjusted spreads is after deducting redemption premium on zero coupon bonds and interest earned on loans sold

Balance sheet | Crore (Year-end March) FY14 FY15 FY16E FY17ESources of FundsCapital 312.1 314.9 314.9 314.9Reserves and Surplus 27643.1 30655.0 33762.3 37546.6Networth 27955.2 30970.0 34077.3 37861.5Secured Loans 110186.4 104689.7 124486.2 145002.6Unsecured Loans 73786.8 103909.3 117868.6 136112.1Other Liabilities & Provisions 13504.1 14182.0 15432.5 16683.5Total 225,432 253,751 291,865 335,660

Applications of FundsFixed Assets 322.2 740.4 824.5 837.5Investments 13912.7 14294.3 14643.3 15493.4Advances 196554.0 227700.0 264373.3 309412.3Other Assets 14643.7 11016.2 12023.4 9916.6Total 225,432 253,751 291,865 335,660


Key ratios (Year-end March) FY14 FY15 FY16E FY17ETotal assets 15.4 12.6 15.0 15.0Advances 15.9 15.8 16.1 17.0Borrowings 15.8 13.4 16.2 16.0Total Income 14.4 13.5 10.0 15.7Net interest income 12.5 14.5 13.6 16.0Operating expenses 16.5 12.5 11.3 10.1Operating profit (excl trading) 17.8 20.5 17.0 21.1Net profit 12.2 10.1 12.1 17.7Book value 12.9 11.0 10.7 11.5EPS 11.2 9.1 12.1 17.7



ICICIdirect.com coverage universe (NBFC) CMP M Cap(|) TP(|) Rating (| Cr) FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E

LIC Housing Finance (LICHF) 489 545 Buy 24,652 27.5 33.4 41.2 17.8 14.6 11.9 3.3 2.5 2.1 1.3 1.4 1.4 18.1 18.7 18.6Reliance Capital (RELCAP) 421 515 Buy 10,318 40.7 34.6 41.9 10.3 12.1 10.0 1.0 0.9 0.9 2.1 1.6 1.6 7.9 6.6 7.6HDFC (HDFC) 1,277 1,410 Buy 201,447 38.0 42.7 50.2 33.6 29.9 25.4 6.6 6.0 5.4 2.5 2.5 2.5 20.3 20.7 22.0PTC India Financial Services(PTCIND) 48 55 Buy 2,740 2.9 7.6 5.6 16.8 6.3 8.6 2.0 1.6 1.3 2.6 5.5 3.7 11.5 26.9 17.4Bajaj Finserv (BAFINS) 1,993 2,155 Buy 31,741 106.2 129.2 160.3 18.8 15.4 12.4 2.9 2.4 2.0 2.0 2.1 2.3 16.7 17.1 17.9Bajaj Finance (BAJAF) 5,318 6,000 Buy 76,545 179.9 228.6 282.0 29.6 23.3 18.9 5.5 3.8 3.3 3.1 3.1 3.1 20.4 19.6 18.9

RoE (%)Sector / Company

EPS (|) P/E (x) P/ABV (x) RoA (%)


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Pankaj Pandey Head – Research [email protected]

ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai – 400 093

[email protected]


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Documents

Rating matrix HDFC Ltd (HDFC) - content.icicidirect.comcontent.icicidirect.com/mailimages/IDirect_HDFCLtd_Q2FY16.pdf · Healthy growth trend in advances to continue HDFC Ltd is the