Buy HDFC Ltd for target price of Rs. 3100 (26% upside): ICICI-Direct

Steady operations; business to pick up from here on…

About the stock: HDFC Ltd is the largest NBFC engaged in housing finance business. It has demonstrated a consistent performance in terms of both business growth as well as asset quality.

 Individual loans contribute ~78% of AUM

 Stake in subsidiaries in insurance and asset management business aid value
Q1FY22 Results: HDFC Ltd reported a steady performance amid the second wave.

 Moderation in advances growth at 7.5% YoY; individual book up 14.5% YoY

 NII up 22% YoY; margin up ~20 bps QoQ, 60 bps YoY

 GNPA up 26 bps QoQ to 2.24%; individual GNPA up 38 bps at 1.37%

What should investors do? HDFC Ltd’s share price has grown ~80% over the past five years. Market leadership, funding advantage and adequate capital lead us to remain positive on fundamentals.

 We retain our BUY rating on the stock

Target Price and Valuation: We value HDFC Ltd at ~2.4x FY23E core ABV and Rs 1499 for subsidiaries to arrive at a target price of Rs 3100 per share.

Key triggers for future price performance:

 Anticipated pick up in business growth led by market leadership

 Funding advantage and adequate capital to aid growth & earnings

 Healthy provision buffer & improvement in collection to aid asset quality

Alternate Stock Idea: Apart from HDFC Ltd, in our coverage we also like Axis Bank.

 Strong liabilities franchise, adequate capitalisation and healthy provision buffer to aid business growth as well as earnings trajectory

 BUY with a target price of Rs 900