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This Large-Cap NBFC Stock Recently Hit 52 Week Low, Sharekhan Suggests Buy For 42% Upside

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Sharekhan, a leading and well-known brokerage firm, has yesterday published a report on HDFC Ltd, where the brokerage has given a buy rating to the stock for a target price of Rs 3,025/share. HDFC's stock price has corrected by 29% from the highs of Rs. 3,021. HDFC has been adapting to newer and faster ways of communicating with stakeholders through a digital interface, changing with the landscape to remain competitive and be future-ready. Currently, the company receives 91% of home applications through digital channels. The company is waiting for regulatory approval of proposed amalgamation of HDFC with HDFC Bank

 

Stock Outlook

Stock Outlook

HDFC's Current Share Price is Rs 2,141.20/share. The 52-week low of the stock recorded this fund on 17 June at Rs 2,026. Whereas, the 52-week high was recorded on 15 November 2021 at Rs 3,021.10/share. The CMP is Rs 115.2 above its 52-week low per share level, and Rs 879.9 below its 52-week high per share level.

The stock has given mixed returns over the five years. To be particular, it has performed well in the long term and average on short investment. However, in the last 1 week, the stock has moved up nearly 5.79%, giving positive returns. As mentioned, it has delivered negative returns in 1 year, as its share price fell 12.88%. It also gave a minor positive return of 1.63% in 3 years, and 31.75% in 5 years, respectively.

Potential Gains - Considering the CMP of HDFC, and the estimated targeted price of Rs 3,025/share, the stocks see a potential-jump of 42% in 12 months.

Healthy loan book growth as the average size of individual loans rise
 

Healthy loan book growth as the average size of individual loans rise

Demand for housing continued to remain strong for both, the affordable housing and high-end segments. Individual disbursements grew by 37% y-o-y in FY22, despite of challenges posed by pandemic with AUM at Rs. 6,539 billion (increased by 15% y-o-y). Individual loan approvals grew by 38% y-o-y and its individual and non-individual loan book grew by 17% y-o-y and 5.6% y-o-y respectively. Average size of individual loans stood at Rs. 33 lakh versus Rs. 29.5 lakh in FY2021. This increase reflects a rise in the proportion of loans in value terms to high-income groups compared to the previous year. During the year, on an AUM basis, 88% of the incremental growth in the loan book came from individual loans and 12% from non-individual loans. On the basis of loan disbursements, 78% were salaried customers while 22% were self-employed. During the year, there was a gradual pick-up in growth in the non-individual loan portfolio, particularly for lease rental discounting and construction finance. With respect to disbursement for construction finance, the company continued to remain selective on incremental lending.

Asset quality stable with adequate coverage ratio

Asset quality stable with adequate coverage ratio

The average collection efficiency for individual loans on a cumulative basis stood over 99% in FY2022. Gross NPLs ratio stood at 1.91% in FY2022 versus 1.98% in FY2021 versus 2.32% in Q3FY22. Gross NPLs was at 0.99% and 4.76% for individual portfolio and non-individual loans respectively. Credit costs stood at 33 bps versus 56 bps in FY2021. The provisions carried as a percentage of exposure at default (EAD) stood at 2.38% in FY2022. It has written off Rs. 6,333 crore in FY2022 versus Rs. 1,372 crore in FY2021. Slippages stood at 1.18% with stage 3 assets at stable levels of 2.3% and stage 2 assets improved to 4.4% (versus 6.3% in FY2021). Provision coverage ratio on stage 3 assets was at 52.1% versus 52.1% in FY2022 versus 48.9% in Q3FY22.

Strong capital position

The capital adequacy stood at 22.8% with Tier 1 capital at 22.2% as on March 2022. Its LCR stood at 80% as against mandatory requirement of 50%.

Sharekhan maintains a Buy on HDFC with Target Price of Rs. 3,025

Sharekhan maintains a Buy on HDFC with Target Price of Rs. 3,025

Currently, housing demand continues to be strong across tier-I, -II & -III cities with a higher number of first-time home buyers and those moving up the property ladder by opting for larger homes or acquiring homes in another location, which bodes well for housing finance companies including HDFC, who is leader in the housing finance market. The company saw an improvement in collection efficiency and there on improved asset quality.

The brokerage said, "With individual disbursements witnessing near historic highs and high yielding non-individual portfolio too seeing revival, we expect strong AUM growth going forward. Its credit costs have already been on a declining trajectory. We believe that the company would emerge as the key beneficiary of the favorable macro factors play. Further, the company is waiting for regulatory approval of proposed amalgamation of HDFC with HDFC Bank. It remains confident that the outcome will be judicious and fair at a systemic level. We believe that with the favourable regulatory developments, the merger with HDFC Bank is likely to be positive and at an opportune time."

The brokerage added, "In the long term, strategies around scaling up of housing loans, PSL certificates and liabilities would be a key to be watched out for. Hence, we maintain a Buy on HDFC with an unchanged SOTP-based PT of Rs. 3,025. Key Risks Economic slowdown due to which slower loan growth and higher than anticipated credit cost may affect earnings."

 

Disclaimer

The stock has been picked from the brokerage report of Sharekhan. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.

Story first published: Thursday, June 23, 2022, 13:43 [IST]
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