HDFC shares dip as brokerages remain positive, but cut earnings estimates

Housing Development Finance Corporation (HDFC) shares declined more than 1 percent in the morning on January 30 as brokerages remained positive on the stock but cut earnings estimates after third-quarter earnings

The stock was quoting at Rs 1,899, down Rs 19.80, or 1.03 percent on the BSE at 09:57 hours IST.

While maintaining buy call on the stock with a price target at Rs 2,360 apiece, CLSA said it has maintained stock among its top picks in the financial sector but lowered earnings estimates a bit to factor in a tad weaker topline.

The housing finance major has been gaining retail share but is cautious on corporate loans.

Credit Suisse also slashed its FY19 EPS estimates by 2 percent due to slower loan growth and fee income, though it retained outperform rating with a price target at Rs 2,150.

The research house said Q3 results were largely in line with estimates as HDFC remained better placed and has managed to maintain spreads.

Asset quality continued to see some pressure but individual NPAs are stable, it added.

HDFC's third-quarter profit fell 14 percent sequentially and 63 percent YoY to Rs 2,114 crore due to a high base.

Net interest income growth came in at a robust 26 percent YoY (versus 15 percent AUM growth), driven by (a) stable spreads, (b) higher assignment income in the quarter and (c) lower leverage due to capital raise and warrant conversion.

The company scaled back on the corporate lending business, while the retail lending business was largely unaffected. AUM grew 3 percent QoQ/15 percent YoY, driven by a growth of 18 percent YoY in retail lending and 8 percent YoY (slowest in past three years) in corporate lending.

Its provision for expected credit losses stood at Rs 116 crore for the quarter ended December 2018, narrowing compared to Rs 401.30 crore reported in September quarter and Rs 1,765 crore in the same period last year.

Asset quality slightly weakened in the quarter gone by as gross non-performing assets were higher at 1.22 percent against 1.13 percent at the end of September quarter.

Reported spreads and margins were largely stable at 2.3 percent and 3.2 percent, respectively. Interestingly, the calculated cost of funds remained unchanged on a sequentially at 8.35 percent.

While maintaining buy call on the stock with a target at Rs 2,300, Motilal Oswal said HDFC's retail loan growth is impressive, despite intense competition and a high base. The next few quarters would be even better, given easing competition due to liquidity issues, it added.

Over the past nine months, HDFC has hiked its home loan rate by 60-70bp, resulting in improved profitability versus the past two years.

While corporate loan growth has slowed down, the research house believes it is only cyclical and should revert to normal soon.

Japanese brokerage firm Nomura said overall results were mixed and valuations at 15.5x September 2020 book look reasonable.

The research house maintained buy call on the stock with a target at Rs 2,000 but corporate banks (private banks) are higher in its pecking order.

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Source: Moneycontrol