HDFC posted a modest 6.7% yoy increase in PAT for 3QFY2016, which is
marginally lower than our expectation. The NII for the quarter grew 9.0% yoy,
which again is slightly lower than our expectation, due to moderate growth in
advances. The company witnessed a pick-up in non-individual loans and hence
had to take extra provisions during the quarter. Further it booked lower treasury
gains yoy, hence the PAT came in marginally lower than our expectation.
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). Nonindividual
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.
NIM declines: 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.
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 Rs230cr on its book.
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 Rs482/share towards the value of its subsidiaries) trades at 3.6x
FY2017E ABV. We maintain our Neutral rating on the stock.

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