Visit us at www.sharekhan.

com

December 08, 2015

Index
Stock Update >> Housing Development Finance Corporation

For Private Circulation only

REGISTRATION DETAILS Regd Add: Sharekhan Limited, 10th Floor, Beta Building, Lodha iThink Techno Campus, Off. JVLR, Opp. Kanjurmarg Railway Station,
Kanjurmarg (East), Mumbai 400042, Maharashtra. Tel: 022 - 61150000. Sharekhan Ltd.: SEBI Regn. Nos. BSE - INB/INF011073351 ; BSE- CD ; NSE - INB/
INF231073330 ; CD-INE231073330 ; MSEI - INB/INF261073333 ; CD-INE261073330 ; DP - NSDL-IN-DP-NSDL-233-2003 ; CDSL-IN-DP-CDSL-271-2004 ; PMSINP000000662 ; Mutual Fund-ARN 20669 ; Commodity trading through Sharekhan Commodities Pvt. Ltd.: MCX-10080 ; (MCX/TCM/CORP/0425) ; NCDEX00132 ; (NCDEX/TCM/CORP/0142) ; NCDEX SPOT-NCDEXSPOT/116/CO/11/20626 ; For any complaints email at igc@sharekhan.com ; Disclaimer: Client
should read the Risk Disclosure Document issued by SEBI & relevant exchanges and Dos & Donts by MCX & NCDEX and the T & C on www.sharekhan.com
before investing.

investors eye

stock update

Housing Development Finance Corporation

Reco: Buy

Stock Update
Risk-reward turns favourable after recent correction; upgraded to Buy

Key points

Company details
Price target:

Rs1,400

Market cap:

Rs1,84,869cr

52 week high/low: Rs1,400/1,062

NSE volume:
(no. of shares)

25.6 lakh

BSE code:

500010

NSE code:

HDFC

Sharekhan code:

HDFC

Free float:
(no. of shares)

CMP:Rs1,171

157.77 cr

Shareholding pattern

Healthy growth in individual loans, signs of revival in non-individual book:

According to the management of Housing Development Finance Corporation
(HDFC), the high-margin non-individual loans (29.1% of loan book) have shown
some signs of recovery over the past couple of quarters (8% YoY). Even as the
company remains conservative on developer loans, it expects growth could be
much better over the next three to four quarters, given a low base and pentup growth that may kick-in. On the other hand, the individual loans continue
to report healthy growth of 23% (in Q2FY2016) including loans sold. The
reduction in interest rates coupled with pick-up in economic growth could
drive growth in mortgages.
Margins pressure in near term, asset quality to remain stable: Given the
reduction in lending rates both on individual and non-individual loans (by
average 45BPS in CY2015) the margins have dropped (calculated). While nearterm pressure on margins persist (due to higher competition, slower reduction
in cost of funds) the pick-up in non-developer loans and dip in cost of funds
may support margins over the next three to four quarters. Due to secured
lending and stringent credit practices, we expect asset quality and credit cost
to remain stable.
Upgrade to Buy as risk return turns favourable after recent correction: The
stock of HDFC has corrected by almost 12% since our report dated October 26,
2015, which suggests that the concerns related to margins have factored in. In
addition, the management commentary suggests that growth in non-individual
book will be much better over the next three to four quarters which will
support spreads and profitability. We therefore have upgraded the rating to
Buy (SOTP-based price target unchanged at Rs1,400). Presently, the stock is
trading at 4.6x its FY2017 book value (stand-alone), which is premium to other
housing finance companies (HFCs) due to superior operating metrics. We have
not factored proceeds from stake sale (9% stake to Standard Life) in life
insurance business (Foreign Investment Promotion Board [FIPB] approval
pending) and dilution on account of warrant issue.

Price chart

Risk to our call: (1) Further weakening of sentiments in the housing sector;
and (2) Irrational competition by financiers could affect earnings growth.

Financial summary

Price performance
(%)

1m

3m

-1.7

2.6

-0.4

7.4

Relative
1.1
to Sensex

-0.2

3.6

18.0

Absolute

6m 12m

Particulars
PAT (Rs crore)
EPS (Rs)
P/E
BVPS
P/BV
RoE
RoA

FY2013
4,848
31.3
37.4
160.6
7.3
19.5
2.7

Sharekhan

FY2014
5,440
34.8
33.6
179.1
6.5
19.5
2.6

December 08, 2015

FY2015
5,990
38.0
30.8
196.7
6.0
19.3
2.5

FY2016E
6,964
44.2
26.5
222.8
5.3
19.8
2.5

FY2017E
8,236
52.3
22.4
253.7
4.6
20.6
2.5

Home

Next

investors eye

stock update

Gross NPA (%)

Return ratios (%)

Loan spreads (%)

Advances break-up

Loan book (Rs cr)

One-year forward P/BV SD band

Sharekhan

December 08, 2015

Home

Next

investors eye

stock update

Financials
Profit and loss statement
Particulars

FY14

FY15

FY16E

6,093

6,803

7,631

8,984

10,813

Non-interest income

1,329

1,503

1,865

2,051

2,256

Net total income

7,423

8,306

9,496

11,035

13,068

681

734

677

800

944

6,741

7,572

8,819 10,235

12,124

Pre-provisioning profit
Provisions

Particulars

FY17E

Net interest income

Operating expenses

Key ratios

(Rs cr)
FY13

FY13

FY14

FY15

FY16E

FY17E

31.3

34.8

38.0

44.2

52.3

160.6

179.1

196.7

222.8

253.7

12.5

14.0

13.0

15.5

18.3

Yield on funds

10.8

10.8

10.6

10.0

9.8

Cost of funds

9.2

9.3

9.2

8.8

8.7

3.4

3.2

3.2

3.2

3.3

69.3

70.0

70.2

69.1

68.6

Cost to income

9.2

8.8

7.1

7.3

7.2

Non-interest income/

6.3

6.2

6.8

6.6

6.1

7.9

8.1

8.2

8.6

8.9

Per share data (Rs)

Earnings
Book value
Dividend
Spreads (%)

169

132

195

280

359

Profit before tax

6,573

7,440

8,624

9,955

11,765

Tax

1,725

2,000

2,634

2,991

3,530

Net interest margins

Profit after tax

4,848

5,440

5,990

6,964

8,236

Operating ratios (%)

Interest expended/

Balance sheet
Particulars

Interest earned

(Rs cr)
FY13

FY14

FY15

FY16E

FY17E

309

312

315

315

315

Assets/Equity (x)

24,521

27,643

30,655

34,767

39,630

Return ratios (%)

30,970

35,082

39,945

RoE

19.5

19.5

19.34

19.8

20.6

208,599 247,853

294,935

RoA

2.7

2.6

2.50

2.5

2.5

21.9

11.6

12.2

17.7

20.4

Liabilities
Equity capital
Reserves & surplus
Networth
Borrowings
Term loans

Total income

24,830

27,955

158,828

184,298

17,824

32,952

26,194

32,271

39,758

116,317 139,580

167,775

Growth ratios (%)

Bonds, debentures

89,071

94,768

Deposits

51,933

56,578

66,088

76,001

87,401

PPP

16.9

12.3

16.5

16.1

18.5

11,703

13,504

14,383

17,144

20,436

PAT

17.6

12.2

10.1

16.2

18.3

Current liabilities

Net interest income

& provisions
Total liabilities

195,361 225,757

253,952 300,079 355,316

Assets
Loans
Investments
Deferred tax asset
Current assets,

Advances

20.8

15.9

16.1

19.0

20.0

Deposits

14.2

16.0

13.2

18.8

19.0

37.4

33.6

30.8

26.5

22.4

7.3

6.5

6.0

5.3

4.6

Valuation ratios (%)

169,571

196,554

228,181 271,535

325,842

13,613

13,913

14,294

14,494

13,480

631

630

11,307

14,380

10,799

11,825

12,949

238

280

677

2,224

3,045

P/E
P/BV

Loans and advances

Net block
Total assets

195,361 225,757

253,952 300,079 355,316

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

Sharekhan

December 08, 2015

Home

Next

Sharekhan Stock Ideas

Apollo Tyres
Ashok Leyland
Bajaj Auto
Gabriel Industries
Hero MotoCorp
M&M
Maruti Suzuki
Rico Auto Industries
TVS Motor

Infrastructure / Real estate

Gayatri Projects
ITNL
IRB Infra
Jaiprakash Associates
Larsen & Toubro
Punj Lloyd

Automobiles

Oil & gas

Oil India
Reliance Ind
Selan Exploration Technology
Pharmaceuticals
Aurobindo Pharma
Cipla
Cadila Healthcare
Divi's Labs
Glenmark Pharmaceuticals
Ipca Laboratories
Lupin
Sun Pharmaceutical Industries
Torrent Pharma
Building materials
Grasim
The Ramco Cements
Shree Cement
UltraTech Cement
Discretionary consumption
Century Plyboards (India)
Cox and Kings
Inox Leisure
Info Edge (India)
KDDL
KKCL
Orbit Exports
Raymond
Relaxo Footwear
Speciality Restaurants
Thomas Cook India
Wonderla Holidays
Zee Entertainment
Diversified / Miscellaneous
Aditya Birla Nuvo
Bajaj Holdings
Bharti Airtel
Bharat Electronics
Gateway Distriparks
Max India
Ratnamani Metals and Tubes
Supreme Industries
United Phosphorus

Banks & Finance

Allahabad Bank
Andhra Bank
Axis (UTI) Bank
Bajaj Finance
Bajaj Finserv
Bank of Baroda
Bank of India
Capital First
Corp Bank
Federal Bank
HDFC
HDFC Bank
ICICI Bank
IDBI Bank
LIC Housing Finance
PTC India Financial Services
Punjab National Bank
SBI
Union Bank of India
Yes Bank
Consumer goods
Britannia
GSK Consumers
Godrej Consumer Products
Hindustan Unilever
ITC
Jyothy Laboratories
Marico
Zydus Wellness
IT / IT services
Firstsource Soluation
HCL Technologies
Infosys
Persistent Systems
Tata Consultancy Services
Wipro
Capital goods / Power
Bharat Heavy Electricals
CESC
Crompton Greaves
Finolex Cable
Greaves Cotton
Kalpataru Power Transmission
PTC India
Skipper
Thermax
Triveni Turbine
Va Tech Wabag
V-Guard Industries

To know more about our products and services click here.

Disclaimer
This document has been prepared by Sharekhan Ltd. (SHAREKHAN) and is intended for use only by the person or entity to which it is addressed to. This document may contain confidential and/or privileged material and is not for any type of circulation and any
review, retransmission, or any other use is strictly prohibited. This document is subject to changes without prior notice. This document does not constitute an offer to sell or solicitation for the purchase or sale of any financial instrument or as an official
confirmation of any transaction. Though disseminated to all customers who are due to receive the same, not all customers may receive this report at the same time. SHAREKHAN will not treat recipients as customers by virtue of their receiving this report.
The information contained herein is obtained from publicly available data or other sources believed to be reliable and SHAREKHAN has not independently verified the accuracy and completeness of the said data and hence it should not be relied upon as such.
While we would endeavour to update the information herein on a reasonable basis, SHAREKHAN, its subsidiaries and associated companies, their directors and employees (SHAREKHAN and affiliates) are under no obligation to update or keep the information
current. Also, there may be regulatory, compliance, or other reasons that may prevent SHAREKHAN and affiliates from doing so. This document is prepared for assistance only and is not intended to be and must not alone be taken as the basis for an investment
decision. Recipients of this report should also be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The user assumes the entire risk of any use made of this information. Each recipient
of this document should make such investigations as he deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult his own
advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. We do not undertake to advise you as to any change of our views. Affiliates of SHAREKHAN may have issued other
reports that are inconsistent with and reach different conclusion from the information presented in this report.
This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to
law, regulation or which would subject SHAREKHAN and affiliates to any registration or licencing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons
in whose possession this document may come are required to inform themselves of and to observe such restriction. Either SHAREKHAN or its affiliates or its directors or employees/representatives/clients or their relatives may have position(s), make market, act
as principal or engage in transactions of purchase or sell of securities, from time to time or may be materially interested in any of the securities or related securities referred to in this report and they may have used the information set forth herein before
publication. SHAREKHAN may from time to time solicit from, or perform investment banking, or other services for, any company mentioned herein. Without limiting any of the foregoing, in no event shall SHAREKHAN, any of its affiliates or any third party involved
in, or related to, computing or compiling the information have any liability for any damages of any kind. The analyst certifies that all of the views expressed in this document accurately reflect his or her personal views about the subject company or companies
and its or their securities and do not necessarily reflect those of SHAREKHAN. Further, no part of the analysts compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this document.

Sharekhan

December 08, 2015

Home

Please refer the Risk Disclosure Document issued by SEBI and go through the Rights and Obligations and Dos and Donts issued by Stock Exchanges and Depositories before trading on the Stock Exchanges. Please refer disclaimer for Terms of Use.
Compliance Officer: Ms. Namita Amod Godbole; Tel: 022-6115000; e-mail: compliance@sharekhan.com Contact: myaccount@sharekhan.com

Next