MOSL: HDFC (Buy)-AUM growth stable-rise in share of retail loans

hdfc: AUM growth stable; rise in share of retail loans

(HDFC IN, Mkt Cap USD46.0b, CMP INR1885, TP INR2225, 18% Upside, Buy)

• HDFC Ltd. (HDFC) reported a 22% beat on PAT, helped by a lower tax rate (20% v/s estimate of 30%). Core PBT (up 11% YoY) was in line with estimate. The company made one-off provisions of INR800m, in line with its policy of 30% of one-off gains, to strengthen the balance sheet. The quarter was also marked by healthy AUM growth (+18% YoY/+4%QoQ), sequentially stable cost of funds (calculated) despite rising bond yields, and stable asset quality.
• Loan growth in the retail segment remained steady (+5% QoQ, +18% YoY), while that in the corporate segment (+2% QoQ, +17% YoY) was marginally lower than the trend in the past few quarters. Overall, the share of retail home loans was up 50bp QoQ at 72.9%. HDFCB has not bought back loans over the last two quarters, leading to a rise in the share of on-book AUM to 90% v/s 88% a year ago.
• Asset quality was steady, with the GNPL ratio in retail and corporate lending largely unchanged sequentially at 1.11% and 2.18%, respectively.
• Reported spreads were steady at 2.29% for 4QFY18 and also for full-year FY18. However, gross fee income declined 11% YoY to INR2.4b. C/I ratio (excl. one-off gains) was up 50bp YoY to 6.3%. Capital raise of ~INR130b happened toward the end of quarter, and thus, there was not much benefit on NII during the quarter.