Indiabulls Securities reiterates 'buy' on HDFC
HDFC continued to post consistent growth in FY08. Its net profit surged 55% in FY08, while its asset size increased 29%.
HDFC
Research: Indiabulls Securities
Rating: Buy
CMP: Rs 2,053
HDFC continued to post consistent growth in FY08. Its net profit surged 55% in FY08, while its asset size increased 29%. Indiabulls Securities reiterates its ���buy��� rating on the stock due to the following factors: Loans grew at 29% over the year.
The compound annual growth rate (CAGR) for mortgage lending for the past five years is 27%. During the slowdown in FY08, the company maintained its growth rate by substituting corporate loans with individual loans. Indiabulls is upbeat about HDFC���s future as the company is focused on maintaining its key strength, i.e. maintaining its momentum in lending, despite changes in the demand dynamics and following sound risk management policies.
In the fourth quarter (Q4) of ���08, HDFC���s spreads increased by 14 basis points (bps) to 2.32%. Its net interest margin (based on quarterly averages) rose by 29 bps year-on-year (y-o-y) to 1.26%. Going forward, high margins, coupled with growth in advances, will help HDFC to sustain its growth momentum.
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The company has consistently reduced its non-performing loans (NPLs) by adhering to sound risk management policies such as adopting a low loan-to-value ratio (average of 65%, maximum of 85%) and lending primarily to end users of property. At the end of FY08, gross NPLs (three months) fell 8 bps y-o-y to 0.84% and the credit cost fell 8 bps to 0.84%.
Disclaimer: Investor's Guide does not accept responsibility for consequences of financial decisions taken by readers on the basis of information provided herein. The aim is to provide a reasonably accurate picture of financial and related opportunities based on information available with us.
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