Buy This Large Cap NBFC Stock For 24% Upside In 2022 Says IIFL Securities

2QFY22 results of HDFC Ltd.

The brokerage in its latest research report has said that the mortgage lender's "Spreads were stable QoQ at 2.29%; b) GS3% declined 10bps QoQ to 2.5%; c) Restructured loans increased 50bps QoQ 1.4%. Of the total restructured loans, ~63% is towards the individual segment. One large account constitutes ~35% of restructured loans and Company expects 50% repayment in the near term from this account; d) ATS for the quarter stood at Rs3.27m (+15% YoY); e) ECL% marginally declined, by 8bps QoQ to 2.56%."

IIFL Securities has noted that "HDFC's AUM growth of 10.5% YoY and margin expansion of 11bps to 3.2% have driven the 14.1% NII growth. On a sequential basis, NII was flat as the 4% QoQ AUM growth was offset by a ~8bps drop in spreads to 3.2%. Assignment income also dropped by 20%/52% YoY/QoQ to Rs1.3bn during the quarter. Retail Disbursements continue to see strong growth, up 80% YoY in 2QFY22. On a consolidated basis, disbursements have grown at 44% YoY. AUM growth continues to be driven by individual loans, up 15.7%/4.0% YoY/QoQ. Non-Individual book declined for the second quarter in a row, down 4.8% on a YoY basis. HDFC has gained market share in the retail segment. While the industry has grown at 9%, HDFC's AUM has seen 16% YoY growth."

According to the brokerage "HDFC's GNPA declined 11bps QoQ to 2.5% compared with 2.6% in 1QFY22. While retail GNPA improved by ~8bps QoQ to 1.28%, stage 2 loans, on the other hand, improved by ~40bps QoQ to 6.2% despite the ~50bps increase in restructured loans being classified under stage 2. Management expects credit cost to trend lower in 2HFY22, provided there is no impact of a potential third COVID wave. On a longer time frame, management does not expect any material change to the credit cost ratios. Collection efficiency in the restructured book continues to be reasonable."

The brokerage’s take on HDFC Ltd.

The brokerage has claimed in its research report that "HDFC is our preferred sector-pick owing to its ability to gain market share despite competitive pressures. The real estate market saw a swift turnaround in TTM, with a broad-based recovery in demand. Given strong demand in the high-end segment in major metros, disbursement growth is likely to be a function of both, volume & ATS. Considering its strong capitalisation, control on cost of funds, lean cost structure and low credit cost, we expect HDFC to report healthy Core ROAA/ROAE of ~2.3%/14%."

"HDFC is receiving strong traction in demand. October 2021 saw the highest ever non-quarter ending-month disbursements. Also, it witnessed the second-highest monthly disbursements ever. Demand has been strong in Tier-II towns as well as in urban areas like Delhi and Mumbai. Construction finance disbursements may also start picking up 4-5 quarters from now, on the back of strong retail demand. Improving affordability is driving the demand. Since the last 3-4 years, while income levels have improved by ~30%, property prices have been largely stagnant, thereby improving affordability. Disbursement growth was 80% YoY in the individual loan segment and at ~44% YoY on overall disbursements," the brokerage claims.

Buy HDFC Ltd. With A Target Price of Rs. 3210 Says IIFL Securities

According to IIFL Securities "HDFC's 2QFY22 earnings were largely in-line. Core operating performance was good, with healthy individual AUM growth of 15.7% YoY, stable spreads (2.29%) and improving asset quality outlook. Risk appetite is improving for the non- Individual segment which should support NIMs in ensuing quarters. We largely maintain earnings estimates and expect a Core PAT CAGR of ~15% for FY22-24. Core ROA is likely to be healthy at ~2%. We largely maintain earnings estimates, as the business is moving on expected lines. Overall, we expect the company to report ~14% AUM CAGR over FY22-24ii, with a marginal increase in share of the nonindividual segment. We bake in largely-stable spreads (~2.3%) and credit costs (~40bps) for this period. Thus, we recommend a buy on the stock with a long-term target of Rs 3210."

Disclaimer

The stock has been picked from the brokerage report of IIFL Securities. 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.