For 2QFY2016, HDFC posted an 18.2% yoy increase in PAT, which is broadly inline
with our expectation. The NII for the quarter grew 6.2% yoy, which is slightly
below our expectation due to moderate growth in advances.
Loan book growth moderate; Asset quality fairly stable
For 2QFY2016, HDFC’s loan book grew by 12.1% yoy, with loans to the
individual segment growing by 23% yoy (after adding back loans sold in the
preceding 12 months) whereas the corresponding growth in the reported loan
book was of 14.0% yoy, which is below our expectation. This is due to greater
amount of loans having been sold to HDFC Bank in recent quarters. During the
quarter, incremental growth in the loan book came through growth in individual
loans, which now constitute almost 69.7% of the total loans portfolio as compared
to 68.6% in 2QFY2015.
The spread stood largely stable at 2.32% as compared to 2.29% in September
2014, while the NIM contracted to 3.95% from a slightly higher 4% in September
2014, despite spreads widening. In declining rate environment, as HDFC has
large Net Worth, even with constant spreads, NIM’s would have a slightly
downward bias. Overall, we expect the loan book to grow at a CAGR of 15.0%
over FY2015-17E, while the NII growth at a CAGR of 11.6% over the same period.
The company continued to keep its asset quality under check, with gross nonperforming
assets as a % of total loans rising marginally by 2bp to 0.71% (vs
0.69% in 1QFY2016). The company continues to maintain a 100% Provision
Coverage Ratio.
Outlook and valuation: HDFC continues to post moderate set of numbers despite
sluggish economic environment. Overall, we expect HDFC to post a healthy PAT
CAGR of 15.3% over FY2015–17E. The stock has surged significantly from the
lows witnessed in the month of August 2015. Currently, HDFC’s core business
(after adjusting Rs482/share towards the value of its subsidiaries) trades at 4.5x
FY2017E ABV, which in our view, offers limited scope for upside from here on.
Hence, we maintain our Neutral rating on the stock.

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