HDFC Q2 Review: Wholesale Loans To Further Aid Growth, Say Analysts

India's largest private mortgage lender will likely see its loan book and net interest income grow faster this year, aided by an improvement in its non-individual loan book, analysts said.

Housing Development Finance Corp. reported a 32% year-on-year increase in its net profit for the second quarter, owing to higher core income and improved dividend income. While interest income dipped over a year ago, NII rose 12.65%.

HDFC's asset quality also improved during the quarter ended September. Restructured loans, however, rose to 1.4% of the book, compared with 0.9% a quarter ago. This was mainly due to higher restructuring of retail housing loans on account of the second Covid-19 wave.

Despite elevated restructuring, analysts see strong improvement during the rest of the financial year. That promoted brokerages to hike price targets for the home financier.

Shares of HDFC rose 1% in early trade on Tuesday to Rs 2,917.25 apiece. Of the 39 analysts tracking the company, 36 recommend a 'buy' and three suggest a 'hold', according to Bloomberg data. The 12-month consensus price target implies an upside of 10%.

Here's what analysts have to say about the mortgage lender's Q2 performance:

Prabhudas Liladher

• Target price raised to Rs 3,322 apiece from Rs 3,214.

• HDFC clocked healthy loan growth with 75% of traction emerging from individual home loans and lion’s share of non-individual growth from lease rental discounting.

• Prepayments are down to 9% compared with historical run-rate of 10-12%.

• Steady-state spreads at 2.3% and net interest margin at 3.6% bespeaks better liability management, especially in light of competitive intensities.

• Build slightly higher growth and NII into FY22 estimates and raise costs estimates for FY24.

Nirmal Bang

• Target price hiked to Rs 3,379 apiece from Rs 3,325.

• In the near-to-medium term, growth would be supported by new project launches, coupled with a 2x (of new launches) growth in resale market.

• Given the long growth runway for the industry, HDFC shall remain a formidable market player.

• Resolution of a key large account in the near term shall result in meaningful reduction in the restructured assets and would largely restrict restructuring to the individual segment.

• Credit costs are expected to trend down gradually over the next couple of years. Balance sheet remains well capitalised.

IDBI Capital

• Target price raised to 3,315 apiece from Rs 2,950.

• Value parent company at Rs 2,008 apiece, with rest of the target price for subsidiaries.

• Competition form large banks could put pressure on spreads, however, growth from non-individual portfolio and lower liquidity should support NIMs.

• HDFC will continue to gain market share as few housing finance companies are focusing on liability side.

• Higher provisions on the balance sheet give the cushion in P&L from any negative impact on non-individual portfolio if third Covid-19 wave impacts.