Macquarie upgrades HDFC to outperform on better subsidiary valuations

Macquarie has upgraded shares of Housing Development Finance Corporation to outperform after being negative to neutral on the stock since July 2012 on account of better subsidiary valuations.

Besides the rating upgrade, the brokerage has also raised target price on the stock by 16 per cent to Rs 1,890.

The brokerage said that structural demand drivers remain intact for housing finance companies such as HDFC whose core business trades at a compelling valuation of 2.5 times FY19 estimated price to book value.

"At a 2.5x FY19E core P/BV, HDFC now trades at a similar valuation as LICHF and at about a 25 per cent discount to IHFL’s. Although the latter has better growth and ROE, we believe a 25 per cent discount is too sharp," said Macquarie in the note to clients.

HDFC on Wednesday reported a 16.8 per cent drop in standalone net profit at Rs 1,556 crore for the quarter ended June.

Macquarie said the reported profit was 7 per cent below its estimate mainly on account of higher tax rate.