MOSL: HDFC (BUY) - AUM growth healthy; Disclosure of stress pool a negative surprise

HDFC: AUM growth healthy; Disclosure of stress pool a negative surprise

(HDFC IN, Mkt Cap USD49.9b, CMP INR2028, TP INR2335, 15% Upside, Buy)

• HDFC's PAT increased 54% YoY to INR21.9b, driven by healthy AUM growth, stable spreads and timing mismatch of receipt of dividend income (INR5.9b in 1QFY19 v/s INR599m in 1QFY18). Total AUM grew 18% YoY (+5% QoQ) to INR4.19t. Individual lending AUM grew 18% YoY (+4.5% QoQ) to INR3.04t. Corporate lending growth has moderated from 22% YoY a year ago to 18% YoY now.
• Reported spreads were stable YoY at 2.28% for the quarter, with individual lending spreads at 1.91% and non-individual lending spreads at 3.14%. NIM stood at 3.5% v/s 3.4% a year ago. Note that HDFC has only restated NIM for 1QFY18 (4% to 3.4%); however, there has not been any restatement for spreads.
• NII growth of 13% YoY is significantly lower than AUM growth of 18%, as, under Ind- AS, HDFC has started recognizing interest on ZCB liability through P&L and structured liability on an effective cost basis.
• Asset quality: GNPA ratio is up 7bp QoQ to 1.18%, largely driven by a 14bp QoQ increase in corporate GNPLs to 2.32%. Outstanding provisions on the balance sheet stood at INR47.6b v/s INR32.8b (restated from INR31.5b) a year ago.