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Stock Ideas: Motilal Oswal has buy rating on HDFC, target price Rs 1,905

In the current liquidity scenario, HDFC has received a disproportionate share of funds across sources, including banks, MFs, life insurers, and deposits.

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Last Updated: May 26, 2020, 11.59 AM IST
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Motilal Oswal has given a buy rating to HDFC with a target price of Rs 1,905 at FY22E SOTP. The brokerage believes the valuation at 1.2 times (subsidiaries adj. at CMP) core PBV largely factors in near-term uncertainty.

HDFC’s core operating profits beat our estimates by 6 per cent and grew 15 per cent year on year to Rs 35 billion. Provisions came in at Rs 12.7 billion v/s our estimate of Rs 3.2 billion. This included Rs 5.5 billion in COVID-19-related provisions and Rs 2.2 billion in write-off charges.

Adjusted for Covid-19-related provisions, core PBT missed estimates by 7 per cent and was flat year on year at Rs 28 billion. NII grew 12 per cent year on year (5 per cent beat), led by stable spreads of 2.3 per cent year on year and quarter on quarter and AUM growth of 12 per cent year on year.

Investment Rationale


Over the past four quarters, HDFC has maintained steady retail loan growth of ~15 per cent year on year, while curtailing wholesale disbursements – the share of wholesale loans in overall AUM is down to 24 per cent (down 130bp year on year). In the current liquidity scenario, HDFC has received a disproportionate share of funds across sources, including banks, MFs, life insurers, and deposits.

The brokerage has built in a ~10bp spread drop in FY21. Asset quality remains a key monitorable going ahead, especially after the extended moratorium ends in August. It has cut its FY21/FY22E PAT estimates by 8 per cent/11 per cent. Near-term ROEs are likely to be 11–12 per cent.

Financials

For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 16600.08 crore, down -42.75 per cent from last quarter sales of Rs 28996.17 crore and down -42.06 per cent from last year same quarter sales of Rs 28652.48 crore, The company reported net profit after tax of Rs 2723.87 crore in the latest quarter.


Promoter/FII Holdings

FIIs held 70.87 per cent stake in the company as of March 31, 2020, while DIIs held 17.78 per cent, and public and others 11.08 per cent.
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