3QFY2016 Result Update | HFC
January 29, 2016
HDFC
NEUTRAL
CMP
`1,148
Performance Highlights
Target Price
-
Particulars (` cr)
3QFY16 2QFY16
% chg (qoq) 3QFY15
% chg (yoy)
Investment Period
-
NII
2,254
2,076
8.6
2,068
9.0
Pre-prov. profit
2,259
2,376
(4.9)
2,109
7.1
Stock Info
PAT
1,521
1,605
(5.2)
1,425
6.7
Sector
HFC
Source: Company, Angel Research
Market Cap (` cr)
181,270
HDFC posted a modest 6.7% yoy increase in PAT for 3QFY2016, which is
Beta
1.3
marginally lower than our expectation. The NII for the quarter grew 9.0% yoy,
52 Week High / Low
1,399/1,093
which again is slightly lower than our expectation, due to moderate growth in
Avg. Daily Volume
2,403,329
advances. The company witnessed a pick-up in non-individual loans and hence
Face Value (`)
2
had to take extra provisions during the quarter. Further it booked lower treasury
BSE Sensex
24,470
gains yoy, hence the PAT came in marginally lower than our expectation.
Nifty
7,425
Growth in loan book remained moderate: For 3QFY2016, HDFC’s loan book
Reuters Code
HDFC.BO
grew by 12.8% yoy, with loans to the individual segment growing by 14.2% yoy
Bloomberg Code
HDFC@IN
(by 23% after adding back loans sold in the preceding 12 months). Non-
individual loans also picked up during the quarter. Incremental growth in the loan
book came on the back of growth in individual loans as well as non-individual
Shareholding Pattern (%)
segments. Individual loans inched up marginally, accounting for 70% of the book.
Promoters
0.0
MF / Banks / Indian Fls
9.8
NIM declines: The spread stood largely stable at 2.31% as compared to 2.32% in
FII / NRIs / OCBs
78.6
the quarter ended September 2015, while the NIM contracted by 8bp to 3.85%
Indian Public / Others
11.6
from 3.93% in 3QFY2015. Softening interest rates and in turn yield will keep the
NIM under pressure in the near term. Overall, we expect the loan book to grow at
a CAGR of 15.0% and the NII to grow at a CAGR of 11.6% over FY2015-17E.
Abs. (%)
3m
1yr
3yr
Sensex
(9.5)
(17.2)
21.7
Asset quality fairly stable: HDFC continued to keep its asset quality under check,
with GNPAs as a % of total loans rising marginally by 3bp/1bp yoy/qoq to
HDFC
(9.3)
(14.6)
43.2
0.72%. The company continues to maintain a 100% Provision Coverage Ratio
and carries extra provision to the tune of `230cr on its book.
3-year price chart
1,400
Outlook and valuation: HDFC posted a moderate set of numbers for the quarter
1,200
despite a sluggish economic environment. Overall, we expect HDFC to post a PAT
CAGR of 11.2% over FY2015-17E. Currently, HDFC’s core business (after
1,000
adjusting
`482/share towards the value of its subsidiaries) trades at
3.6x
800
FY2017E ABV. We maintain our Neutral rating on the stock.
600
Key financials (standalone)
Y/E March (` cr)
FY2014
FY2015
FY2016E
FY2017E
NII*
6,666
7,631
8,341
9,502
Source: Company, Angel Research
% chg
12.5
14.5
9.3
13.9
Vaibhav Agrawal
Net profit
5,440
5,990
6,466
7,407
022 - 3935 7800 Ext: 6808
% chg
12.2
10.1
8.0
14.5
NIM (%)
3.4
3.4
3.3
3.3
Siddharth Purohit
EPS (`)
34.9
38.0
41.1
47.0
022 - 3935 7800 Ext: 6872
P/E (x)
32.9
30.2
28.0
24.4
P/ABV (x)
6.4
5.8
5.3
4.8
RoA (%)
2.5
2.4
2.3
2.3
Chintan Shah
022 - 4000 3600 Ext: 6828
RoE (%)
20.5
20.3
19.9
20.8
Source: Company, Angel Research; Note: * Core NII; CMP as of January 28, 2015.
Please refer to important disclosures at the end of this report
1
HDFC | 3QFY2016 Result Update
Exhibit 1: Quarterly performance (standalone)
Particulars (` cr)
3QFY16
2QFY16
% chg (qoq)
3QFY15
% chg (yoy)
FY2015
FY2014
% chg
Income from operations
7,124
6,994
1.9
6,656
7.0
26,272
23,338
12.6
Interest expensed
4,869
4,918
(1.0)
4,588
6.1
17,975
16,029
12.1
NII
2,254
2,076
8.6
2,068
9.0
8,297
7,309
13.5
Non-interest income
204
487
(58.0)
227
(10.0)
1,199
859
39.6
Operating income
2,459
2,563
(4.1)
2,295
7.1
9,496
8,168
16.3
Operating expenses
200
187
6.9
185
8.0
707
628
12.5
Pre-prov. profit
2,259
2,376
(4.9)
2,109
7.1
8,789
7,540
16.6
Provisions & cont.
68
52
30.8
45
51.1
165
100
65.0
PBT
2,191
2,324
(5.7)
2,064
6.1
8,624
7,440
15.9
Prov. for taxes
670
719
(6.8)
639
4.9
2,634
2,000
31.7
PAT
1,521
1,605
(5.2)
1,425
6.7
5,990
5,440
10.1
EPS (`)
96.2
10.2
846.2
9.1
961.3
38.0
34.9
9.1
Cost-to-income ratio (%)
8.1
7.3
83bp
8.1
7bp
7.4
7.7
Effective tax rate (%)
30.6
30.9
31.0
30.5
26.9
Source: Company, Angel Research
Growth in Loan book remained moderate
For 3QFY2016, HDFC’s loan book grew by 12.8% yoy, with loans to the individual
segment growing by 14.2% yoy (by 23% after adding back loans sold in the
preceding 12 months). Non-individual loans also picked up during the quarter.
Incremental growth in the loan book came on the back of growth in individual
loans as well as non-individual segments. Individual loans inched up marginally,
accounting for 70% of the book.
Exhibit 2: Loan book grows at a moderate pace
Exhibit 3: Individual loans grew at 14% yoy
Advances (`cr)
Growth (yoy, %)
Ind. loans as % to Total
Non Ind. loans as % to Total
Ind. Loan growth (%) -RHS
Non Ind. loan growth (%) -RHS
18.0
190,000
120.0
30.0
15.8
170,000
100.0
25.0
16.0
150,000
14.4
80.0
20.0
13.7
130,000
12.1
14.0
12.8
60.0
15.0
110,000
40.0
10.0
90,000
12.0
20.0
5.0
70,000
50,000
10.0
-
-
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
Source: Company, Angel Research
Source: Company, Angel Research
NIM declines yoy
The spread stood largely stable at 2.31% as compared to 2.32% in the quarter
ended September 2015, while the NIM contracted by 8bp to 3.85% from 3.93% in
3QFY2015. Softening interest rates and in turn yield will keep the NIM under
pressure in the near term. Overall, we expect the loan book to grow at a CAGR of
15.0% and the NII to grow at a CAGR of 11.6% over FY2015-17E.
January 29, 2016
2
HDFC | 3QFY2016 Result Update
Exhibit 4: Spreads strong at 2.31% for 3QFY2016
Exhibit 5: NII growth trend
NII (`cr)
Growth yoy (%, RHS)
(%)
2,800
16.7
18.0
2.40
2.32
2.32
16.0
2.35
2.31
2.31
2.31
13.1
2.29
2.29
2.29
2.30
14.0
2.25
2,400
12.0
2.20
8.9
9.0
10.0
2.15
8.0
6.2
2.10
2,000
6.0
2.05
4.0
2.00
2.0
1,600
-
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
Source: Company, Angel Research
Source: Company, Angel Research
Asset quality fairly stable
HDFC continued to keep its asset quality under check, with GNPAs as a % of total
loans rising marginally by 3bp/1bp yoy/qoq to 0.72%. The company continues to
maintain a 100% Provision Coverage Ratio and carries extra provision to the tune
of `230cr on its book.
Exhibit 4: NPA coverage remains at 100%
Exhibit 5: Gross NPA ratio remains stable
Gross NPA (`cr)
PCR (%, RHS)
0.75
Gross NPA % (3 months)
2,100
120.0
100.0
100.0
100.0
100.0
100.0
0.70
1,800
90.0
1,500
0.65
1,200
60.0
0.60
900
600
30.0
0.55
300
0.50
-
-
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
Source: Company, Angel Research
Source: Company, Angel Research
Outlook and valuation
HDFC posted a moderate set of numbers for the quarter despite a sluggish
economic environment. Overall, we expect HDFC to post a PAT CAGR of 11.2%
over FY2015-17E. Currently, HDFC’s core business (after adjusting `482/share
towards the value of its subsidiaries) trades at 3.6x FY2017E ABV. We maintain our
Neutral rating on the stock.
January 29, 2016
3
HDFC | 3QFY2016 Result Update
Company Background
HDFC is India's leading housing finance company, with a balance sheet size of
around `2.6lakh cr. The company's primary business is to provide loans for the
purchase or construction of residential houses. HDFC's distribution network spans
392 outlets, covering more than 2,400 towns and cities across India. HDFC also
has representative offices in London, Dubai and Singapore and service associates
in Kuwait, Oman, Qatar, Abu Dhabi and Saudi Arabia to cater to NRIs. From its
origins as a specialized mortgage company, HDFC has grown into a financial
conglomerate with market leading group companies in banking, asset
management and insurance verticals.
January 29, 2016
4
HDFC | 3QFY2016 Result Update
Income statement (standalone)
Y/E March (` cr)
FY12
FY13
FY14
FY15
FY16E
FY17E
NII*
4,998
5,927
6,666
7,631
8,341
9,502
- YoY Growth (%)
17.7
18.6
12.5
14.5
9.3
13.9
Other Income
1,199
1,329
1,503
1,865
2,017
2,350
- YoY Growth (%)
12.0
10.8
13.0
24.1
8.1
16.5
Operating Income
6,198
7,257
8,168
9,496
10,358
11,852
- YoY Growth (%)
16.5
17.1
12.6
16.3
9.1
14.4
Operating Expenses
452
539
628
707
795
898
- YoY Growth (%)
18.6
19.3
16.5
12.5
12.5
13.0
Pre - Provision Profit
5,746
6,718
7,540
8,789
9,563
10,954
- YoY Growth (%)
16.4
16.9
12.2
16.6
8.8
14.5
Prov. & Cont.
80
145
100
165
175
213
- YoY Growth (%)
14.3
81.3
(31.0)
65.0
6.1
21.6
Profit Before Tax
5,666
6,573
7,440
8,624
9,388
10,741
- YoY Growth (%)
16.4
16.0
13.2
15.9
8.9
14.4
Prov. for Taxation
1,543
1,725
2,000
2,634
2,922
3,334
- as a % of PBT
27.2
26.2
26.9
30.5
31.1
31.0
PAT
4,123
4,848
5,440
5,990
6,466
7,407
- YoY Growth (%)
16.6
17.6
12.2
10.1
8.0
14.5
Note: *Core NII
Balance sheet (standalone)
Y/E March (` cr)
FY12
FY13
FY14
FY15
FY16E
FY17E
Share Capital
295
309
312
315
315
315
Reserve & Surplus
18,722
24,691
27,643
30,655
33,661
37,092
Loan Funds
1,39,128
1,58,828
1,84,298
2,08,694
2,33,413
2,76,726
- Growth (%)
20.9
14.2
16.0
13.2
11.8
18.6
Other Liabilities & Prov.
9,375
11,703
13,504
14,383
16,153
18,962
Total Liabilities
1,67,520
1,95,531
2,25,757
2,54,047
2,83,542
3,33,095
Investments
12,207
13,613
13,804
14,294
15,020
16,238
Advances
1,40,422
1,69,571
1,96,554
2,27,700
2,55,024
3,00,928
- Growth (%)
20.2
20.8
15.9
15.8
12.0
18.0
Fixed Assets
234
238
276
677
758
894
Other Assets
14,657
12,109
15,123
11,376
12,741
15,034
Total Assets
1,67,520
1,95,531
2,25,757
2,54,047
2,83,542
3,33,095
January 29, 2016
5
HDFC | 3QFY2016 Result Update
Ratio analysis (standalone)
Y/E March
FY12
FY13
FY14
FY15
FY16E
FY17E
Profitability ratios (%)
NIMs
3.6
3.6
3.4
3.4
3.3
3.3
Cost to Income Ratio
7.3
7.4
7.7
7.4
7.7
7.6
RoA
2.7
2.6
2.5
2.4
2.3
2.3
RoE
22.7
22.0
20.5
20.3
19.9
20.8
Asset Quality (%)
Gross NPAs
0.76
0.71
0.69
0.68
0.70
0.70
Net NPAs
-
-
-
-
-
-
Provision Coverage
100.0
100.0
100.0
100.0
100.0
100.0
Per Share Data (`)
EPS
27.9
31.4
34.9
38.0
41.1
47.0
ABVPS (75% cover.)
128.8
161.7
179.1
196.7
215.8
237.5
DPS
11.0
12.5
14.0
15.1
16.1
18.4
Valuation Ratios
PER (x)
41.1
36.6
32.9
30.2
28.0
24.4
P/ABVPS (x)
8.9
7.1
6.4
5.8
5.3
4.8
DuPont Analysis#
NII
3.4
3.4
3.3
3.3
3.2
3.2
(-) Prov. Exp.
0.1
0.1
0.0
0.1
0.1
0.1
Adj. NII
3.4
3.3
3.2
3.2
3.1
3.1
Treasury
0.2
0.2
0.1
0.2
0.1
0.1
Int. Sens. Inc.
3.6
3.5
3.4
3.4
3.3
3.2
Other Inc.
0.5
0.4
0.5
0.4
0.5
0.5
Op. Inc.
4.1
3.9
3.8
3.9
3.7
3.7
Opex
0.3
0.3
0.3
0.3
0.3
0.3
PBT
3.8
3.6
3.5
3.6
3.4
3.4
Taxes
1.1
1.0
1.0
1.1
1.1
1.1
RoA
2.7
2.6
2.5
2.4
2.3
2.3
Leverage
14.4
12.6
11.1
10.9
10.8
10.9
RoE
39.3
33.2
28.1
26.3
24.7
24.9
Note: # Core RoEs excluding income and investments in subsidiaries
January 29, 2016
6
HDFC | 3QFY2016 Result Update
Research Team Tel: 022 - 39357800
DISCLAIMER
Angel Broking Private Limited (hereinafter referred to as “Angel”) is a registered Member of National Stock Exchange of India Limited,
Bombay Stock Exchange Limited and Metropolitan Stock Exchange of India Limited. It is also registered as a Depository Participant with
CDSL and Portfolio Manager with SEBI. It also has registration with AMFI as a Mutual Fund Distributor. Angel Broking Private Limited is
a registered entity with SEBI for Research Analyst in terms of SEBI (Research Analyst) Regulations, 2014 vide registration number
INH000000164. Angel or its associates has not been debarred/ suspended by SEBI or any other regulatory authority for accessing
/dealing in securities Market. Angel or its associates including its relatives/analyst do not hold any financial interest/beneficial
ownership of more than 1% in the company covered by Analyst. Angel or its associates/analyst has not received any compensation /
managed or co-managed public offering of securities of the company covered by Analyst during the past twelve months. Angel/analyst
has not served as an officer, director or employee of company covered by Analyst and has not been engaged in market making activity
of the company covered by Analyst.
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment
decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should
make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the
companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine
the merits and risks of such an investment.
Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and
trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's
fundamentals.
The information in this document has been printed on the basis of publicly available information, internal data and other reliable
sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this
document is for general guidance only. Angel Broking Pvt. Limited or any of its affiliates/ group companies 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.
Angel Broking Pvt. Limited has not independently verified all the information contained within this document. Accordingly, we cannot
testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document.
While Angel Broking Pvt. Limited endeavors to update on a reasonable basis the information discussed in this material, there may be
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This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced,
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Neither Angel Broking Pvt. Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from
or in connection with the use of this information.
Note: Please refer to the important ‘Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the
latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates may
have investment positions in the stocks recommended in this report.
Disclosure of Interest Statement
HDFC
1. Analyst ownership of the stock
No
2. Angel and its Group companies ownership of the stock
No
3. Angel and its Group companies' Directors ownership of the stock
No
4. Broking relationship with company covered
No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors
Ratings (Based on expected returns
Buy (> 15%)
Accumulate (5% to 15%)
Neutral (-5 to 5%)
over 12 months investment period):
Reduce (-5% to -15%)
Sell (< -15)
January 29, 2016
7
