HDFC has maintained its leadership position in the individual loan segment. The company seems to be taking the right approach in the corporate segment by slowing down growth. Hence, we retain our overweight rating on the stock. We marginally tweak our estimates and roll forward valuations by a quarter. Thus, we update our 12-month price target to R917 per share. Our price target is based on our SOTP valuation for which we use a two-stage dividend discount model to value its core lending business (implied P/F BV multiple of 4.1x).
Overall loan growth (19% y-o-y) remained steady. The individual loan segment (up 24% y-o-y) continued to drive loan growth. In this segment, HDFC continues to gain market share from banks (bank lending in individual home loans grew 18% y-o-y in November 2013). Corporate loan growth (up 10% y-o-y), while showing a small uptick, remained muted. Asset quality remained stable. Gross NPAs declined (2 bps q-o-q) and credit costs remained negligible (6 bps). Operating cost growth (17% y-o-y) was broadly in line with asset growth (19% y-o-y).
HDFC has maintained a relatively cautious approach toward corporate lending compared with banks. Bank lending to commercial real estate (up 19% y-o-y in November 2013) continues to grow at a relatively faster pace than HDFC?s corporate book (up 10% y-o-y). In our view, HDFC?s slower corporate growth is a prudent strategy to avoid credit quality stress in the current environment. Management has indicated the outlook for corporate loan growth going forward still remains uncertain.
Why overweight? HDFC?s best-in-class operating capabilities, strong performance in the high-return corporate portfolio and stable spreads and asset quality underline it leadership position. Its life insurance and AMC businesses continue to retain leadership role in a tough environment.
Barclays
