“BUY” HDFC Ltd. With A Target Price of Rs. 3,589 Says Sharekhan

 

The brokerage’s take on HDFC Ltd.

Sharekhan Ltd has noted in its research report that "We believe that the housing finance sector is set to grow exponentially going ahead driven by lower penetration in India as compared to other developed and developing countries. Additionally, better affordability, record low-interest rates and discounts from real estate companies coupled with supportive government initiatives are likely to boost the demand for housing. Government initiatives such as the Pradhan Mantri Awas Yojana (PMAY) and Smart Cities Mission would boost housing demand in India. Nearly 66% of India's population is aged below 35 and ~32% of the population resides in cities; this is estimated to be 50% by 2030."

The brokerage has said "Hence, considering the above factors and opportunities present in the housing sector, we believe that HDFC stands to benefit going forward, being the largest and dominant player in the housing finance segment. The company has demonstrated AUM growth at a CAGR of 14% over FY17 through FY21. Its AUM rose by 11% y-o-y in Q2FY22 and disbursements in October 2021 were the second highest with 44% y-o-y growth. The management expects a positive loan book growth in FY22."

According to the brokerage's research report "Driven by favourable sector dynamics, HDFC is poised to witness a strong growth going ahead. The real estate market has picked up steadily after the slowdown due to the pandemic with demand back on track in the metros and lending rates are at all-time lows. With an increase in affordability and a rise in the income levels, it is an opportune time for the HFCs to cater to financing needs. We expect the company to deliver an AUM growth of 13% over FY22E to FY23E."

Sharekhan Ltd has reported that "The company's asset quality remained stable and stands better as compared to its peers. Its retail/individual loan NPAs have remained at less than 1% over the years, except for 1.37% in Q1FY22. With respect to non-individual NPAs, it appears to have peaked out in Q1FY22 (4.87%). The collection efficiency (CE) has improved over the quarter and for individual loans, the CE was at 98% in Q2FY22. Hence with the improvement in the collections, we expect asset quality to remain stable going ahead. With capital adequacy at 22.4% as of September 21, the company is well capitalised to reap the benefits of potential growth opportunities housing finance space."

Buy HDFC Ltd. With A Target Price of Rs. 3,589

According to the brokerage's call "We re-iterate Buy on HFDC with a SOTP based PT of Rs. 3,589. At CMP, HDFC trades at 3.9x of FY23E P/BV. HDFC has weathered and emerged as the strongest player among all large HFCs, especially during the pandemic. The management was optimistic in terms of improving CE and asset quality. Individual non-performing loans seem to be restrained at 1%, barring Q1FY2022, which saw NPA at 1.37%. While non-individual loans are likely to take some more time to recover. On the disbursement front, the individual segment witnessed the highest-ever disbursals, while management indicated a healthy pipeline for the non-individual segment. We believe that the company would emerge as the key beneficiary of the favourable macro factors play - low-interest rate regime, improved affordability, the revival of demand for housing and stable property prices."

Disclaimer

The stock has been picked from the brokerage report of Sharekhan Limited. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.