After recent correction, 1205-1190 might be a very good demand zone
Q2 PAT at Rs.1605 Cr (including one time dividend income of Rs.425 cr)
was slightly below street estimates (QOQ/YOY at 1361/1358)
Q2 EPS at 9.93 (diluted) against consensus of 10.34 and QOQ/YOY at 8.56/8.58
CMP: 1221
Buy: 1205-1190
TGT: 1254-1313-1350 (1-3M)
TGT: 1375-1400 & 1500-1610 (12-24M)
TSL<1175
Note: Consecutive closing below 1175 for any reason, HDFC can fall up to 1144-1115-1090 & 1050 area where one can again accumulate it for better investment buying average.
Some key takeaways & rationale:
Although Q2FY16 result of HDFC was slightly below street estimates it was not great in the sense that NII was flat at +2 % sequentially (QOQ) and rose by only 7% YOY.
Thus Q2 spreads was below consensus and that spooked the scrip which was already rallied by more than 20% for expectation of a good result from late Aug low (1092) to recent result day high of around 1350.
As par management, lower NII is mainly due to transmission of lower interest rates by RBI on its share holder's fund (Rs.34000 cr); i.e. it has earned comparatively lower reverse repo which affects its NII by 125 bps.
Actually, on YOY basis, NII was slightly improved from 2.29% to 2.32% on gross operating basis. HDFC is confident of maintaining NII volume on the back of loan growth despite lower spreads.
Looking ahead, HDFC may see stronger loan & housing demand on the back of expected economic recovery, favorable demography, smart city theme, affordable housing for all and 7-th pay commission induced liquidity in our country.
But real estate rules & regulations also need to be more simple (ease of doing business) !!
Also analysts were not so convinced about drop in Q2 NII of HDFC and feel that due to change in product mix, the same will unlikely to improve in future. Street is also apprehended about fall in other fee income as HDFC has not made any non-subsidiary investment in the last few years.
Going forward, deleveraging of insurance arms & other subsidiaries might be some of the triggers for HDFC apart from its relatively stable asset quality.
As par BG metrics & current market parameters:
(on stand alone TTM & projected EPS basis)
Present median valuation of HDFC may be around: 1220 (FY:15/TTM)
Projected fair valuations might be around: 1330-1435-1565 (FY:16-18)
| SCRIP | EPS(TTM) | BV(Act) | P/E(AVG) | Low | High | Median | 200-DEMA | 10-DEMA |
| HDFC | 39.15 | 196.3 | 30 | 1199.94 | 1224.47 | 1212.21 | 1225.94 | 1276.56 |
| HDFC | 46.75 | 216.95 | 30 | 1311.25 | 1338.05 | 1324.65 | 1225.94 | 1276.56 |
| HDFC | 54.55 | 240.75 | 30 | 1416.42 | 1445.37 | 1430.90 | 1225.94 | 1276.56 |
| HDFC | 64.95 | 265.85 | 30 | 1545.56 | 1577.14 | 1561.35 | 1225.94 | 1276.56 |
Analytical Charts:
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