Motilal Oswal is bullish on HDFC has recommended buy rating on the stock with a target price of Rs 1905 in its research report dated May 25, 2020.
Motilal Oswal 's research report on HDFC
HDFC’s core operating profits beat our estimates by 6% and grew 15% YoY to INR35b. Provisions came in at INR12.7b v/s our estimate of INR3.2b. This included INR5.5b in COVID-19-related provisions and INR2.2b in write-off charges. Adjusted for COVID-19-related provisions, core PBT missed estimates by 7% and was flat YoY at INR28b. NII grew 12% YoY (5% beat), led by stable spreads of 2.3% YoY and QoQ and AUM growth of 12% YoY. The GNPL ratio increased ~60bp QoQ to 1.99%, driven by a 20bp/180bp increase in the GNPL ratio of the Retail/Corporate lending book to 0.95%/4.71%. The company recognized two to three large accounts worth INR12.6b, 42% of the incremental GNPA) as GNPA to expedite recovery. Adjusted for this, Non-Retail GNPA% stood at 3.7%. Around 26%/21%/40% of Overall/Individual/Non-Retail customers have opted for a loan moratorium to date. We expect individual disbursements to decline sharply in FY21 due to: a) extended lockdown in large cities (Top 7 – 55%+ of the business) in 1Q, b) an expected drop in property prices, and c) possible decline in volumes before normalcy returns. Asset quality is likely to remain under pressure; however, one-off gains (e.g., Insurance stake sale) would aid provisioning charges. Overall, we cut earnings by 8%/11% for FY21/FY22. We believe the valuation at 1.2x (subsidiaries adj. at CMP) core PBV largely factors in near-term uncertainty. Buy.
Outlook
Asset quality remains a key monitorable going ahead, especially after the extended moratorium ends in August. We cut our FY21/FY22E PAT estimates by 8%/11%. Near-term ROEs are likely to be 11–12%. Buy, with FY22E SOTP of INR1,905.
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