HDFC: ‘Buy’ decides stays with a worth target of Rs 3,300

HDFC stays with a worth target of Rs 3,300

The annual report of HDFC, for FY21, showed 67% of new stage-3 loans occurred from stage 2 and the backtesting of FY22. Also, 0.4% of loans were within the debt-asset swap.

A rise in assets from 9% to 15% over the financial year 17-21 is a drag on core ROE even as core ROA rose and leverage would elevate ROE. In FY21, its stage 3 loans rose up to 13% YoY to 2.3% of loans. 67% of the gross addition was from stage-2 loans and moreover from the corporate or company loans. HDFC: ‘Buy’ decides stays with a worth target of Rs 3,300

Backtesting of FY22 stage-3 forecasts with trends for FY21 indicates a buffer in forecasts.

Some other trends are as follows:

  1. HDFC has assets worth up to 18 Billion
  2. The NPL ratios in the select corporate seats are as high as 15-27%. NPL ratio being 4.8%

Retail loans have risen by 12% YoY. YoY was driven by a 9% increase in the average ticket size reflecting strong demand in projects and high-end clients.

Better leverage to aid ROE; ‘buy’ stays: During FY17-21, a rise in the asset was seen from 9% to 15%, dragged ROE from 19% to 13% even as core ROA risen from 1.7% to 1.9%.

Our ‘buy call stays with a price target of Rs. 3,330 shares with a value of lending business t 2.6x Jun23.

Key highlights from Mr Parekh’s letter &MD&A are as follows

  1. Regulators shouldn’t see a reset in lending rates as restructuring of the loans
  2. Adjusting norms on asset mix for liquid asset
  3. The share of individual housing loans in total is ahead of goals set for March-24 but the share of housing loans in a total asset at 58% is lower than the target of 60% by March-24

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