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MOSL: HDFC (Buy)-Core operating profit in-line; commentary suggests healthy recovery from second wave impact

HDFC: Core operating profit in-line; commentary suggests healthy recovery from second wave impact

(HDFC IN, Mkt Cap USD59.8b, CMP INR2462, TP INR3290, 34% Upside, Buy)

 

• HDFC’s core PBT grew 12% YoY to INR32.2b (5% beat). NII (ex-assignment income) at INR41.3b was 2% above our estimate. On the other hand, provisions at INR6.9b were lower than our est. of INR8b. Better-than-expected MTM gains on investment led to an 11% beat on reported PAT (down 6% QoQ / 2% YoY).
• Strong disbursement growth (on a low base) of 181% YoY, stable QoQ spreads at 2.3%, 26bp QoQ decline in GNPA to 2.24%, and an increase of 30bp QoQ in Stage 2 assets were some of the operational highlights for the quarter.
• We increase our FY22E/FY23E estimates by 7–8%, factoring in higher NII and non-core income. We expect HDFC to report core RoA/RoE of 2%/13% over FY22–23E. Reiterate Buy, with SOTP-based TP of INR3,290 (FY23E SOTP-based).

 

Disbursements recover sharply over Jun–Jul’21; loan mix largely stable

• The recovery in disbursements was much stronger than expected at the start of the second COVID wave. July’21 disbursements were the third highest ever and the highest ever in a non-quarter month-end. Overall individual AUM grew 2% QoQ / 14% YoY to INR4.5t. The share of individual loans was up ~100bp QoQ to 78.3% (the highest ever).
• Non-Individual segment AUM declined ~4% QoQ and ~9% YoY. Growth in this segment was partially impacted by pre-payments in LRD due to the listing of REITs, leading to a run-off of AUM. Also, because construction activity was impacted during the lockdowns, even the disbursements in construction finance suffered in 1QFY22. Overall AUM grew +1% QoQ / 8% YoY to INR5.74t.
• The company assigned loans worth INR55b during the quarter v/s INR14b YoY. The corresponding assignment income stood at INR2.7b (v/s INR4.4b QoQ and INR1.8b YoY).