Stock Market Result Update on HDFC for 2QFY2012

Stock Market Result Update on HDFC for 2QFY2012 with a Neutral recommendation.

For 2QFY2012, HDFC’s standalone net profit grew by healthy 20.2% yoy (up 14.9% qoq). Asset quality continued to be stable, although spreads for 1HFY2012 witnessed a marginal decline. We recommend Neutral on the stock.

Another consistent quarter: For 2QFY2012, HDFC’s loan book grew by healthy 19.5% yoy and 2.3% qoq to `126,992cr. Approvals in 2QFY2012 stood at `24,426cr (up 18% yoy), while disbursements stood at `20,825cr (up 19.0% yoy). HDFC’s asset quality continued to be stable during 2QFY2012, with gross NPA ratio falling by 4bp yoy to 0.82%. During 2QFY2012, an amount of `255cr was utilized from the additional reserve to meet the additional provisions consequent to changes in provisioning norms mainly on standard assets (0.4% standard provisioning required on housing loans as well). The spread on loans over the cost of borrowings stood at 2.29% for 1HFY2012 compared to 2.34% for 1HFY2011. Other income increased by 35.1% yoy (up 2.1% qoq) to `315cr, driven by a 175.3% yoy increase in dividend income (`63cr) and a 47.4% yoy increase in profits on sale of investments (`87cr).

Outlook and valuation: At the CMP, HDFC’s core business (after adjusting `225/share towards value of the subsidiaries) is trading at 4.2x FY2013E ABV of `106.9 (including subsidiaries, the stock is also trading at 4.2x FY2013E ABV of `159.0). We expect HDFC to post a healthy PAT CAGR of 15.9% over
FY2011–13E. However, considering that the stock is currently trading at 4.6x one-year forward P/ABV (the same as its median of 4.6x over the last five years) and at a 61.7% premium to the Sensex in P/E terms (compared to an average of 37.7% over the last five years), we consider the stock to be fully valued at its CMP and, hence, recommend Neutral on the stock