HDFC is well-placed in the current environment to capture profitable market share, Motilal Oswal has said in a report.
"The company has access to low cost of funds, a strong ALM position, comfortable leverage, and adequate provisioning on the balance sheet.
While the Tier-I ratio is healthy at 16.6%, it is likely to improve further with the proposed INR140b capital raise and stake sale in the Insurance business. This would help HDFC face any contingency, fund its own growth requirement, and further capture any inorganic opportunities at the parent (portfolio buyouts) and subsidiary levels (M&A opportunities)," the report has noted.
According to Motilal Oswal the share of retail customers (by value) that availed moratorium declined 700 basis points in the second phase v/s the first phase. On the other hand, the share of corporate loans under moratorium remains high at 40 per cent.
"However, we derive comfort from the fact that in the past four years, HDFC has quadrupled its provision buffer to Rs 110 billion; thus, its provisions now exceed its outstanding GNPLs," the report states.
Motilal Oswal also notes that most of HDFC's subsidiaries are among the top three players in their respective segments.
"The company continues to support them when needed; for example, it infused Rs 85 billion equity capital in HDFCB in FY19 and is likely to do so again in the future, in our view. Importantly, the value contribution of subsidiaries/associates has been increasing; they now contribute 54 per cent to our SOTP v/s 37 per cent five years ago and 34 per cent 10 years ago," the brokerage firm has noted
"Due to the COVID-19 crisis, near-term growth is likely to be challenging. However, the medium- to long-term outlook remains strong, especially given the much lower competitive intensity within housing finance companies (HFCs). Sharp decline in incremental cost of funds over the past three months would help maintain stable spreads at 2.1-2.3%. Maintain Buy, with SOTP (FY22E-based) of Rs 2,150," Motilal Oswal has stated in its report.