HDFC poised to continue winning market share in HFCs - Should you buy the stock?

Even as housing finance companies (HFC) have been hit by heavy selling pressure, low lending demand and liquidity crunch in NBFC sector, there is one housing service provider that has made a great escape. This would be none other than Housing Development Finance Corp (HDFC). Experts have been positive about HDFC and believe that the company will continue to gain market share, thereby maintaining leadership in the HFC sector. Following which, they have recommended to investors that they can buy HDFC shares. On Tuesday, share price of HDFC finished at Rs 2172.15 per piece up by Rs 22.90 or 1.07%, after touching an intraday high and low of Rs 2176.80 per piece and Rs 2138.85 per piece respectively on Sensex.

Talking about HDFC, Jignesh Shial, Anand Dama and Parth Sanghvi analysts at Emkay said, “We understand that as a result of constant efforts by the RBI (through repeat OMOs), banks are sitting on sufficient liquidity but not lending incrementally to NBFCs due to a lack of confidence in the sector. HDFC has significantly gained from balance transfers/refinancing as major housing lenders have virtually stopped disbursements of approved loans. The ongoing liquidity crisis has brought the importance of ALM at the forefront in mortgage lending. With having maintained the discipline of ALM, HDFC is poised to continue winning market share and receive funds at cheaper rates, making it one of the most competitively priced lenders in this space.”

Additionally, the trio explained that, HDFC’s access to deposits at scale sets the company apart from others and enables it to fund the lending business competitively and profitably. The sale of Gruh Finance also hands sufficient liquidity to continue driving growth. 

On stock price, the Emkay analysts have maintained  loan growth estimates over FY19-21 intact at ~16% CAGR, considering ease in competition, HDFC’s diversified liability franchise and higher coverage. Adding they said, “ We value the company on a SOTP basis, assigning multiples to each key subsidiary.”

Following which, in their views, AUM growth should remain healthy (on market share gains) with improving spreads (diversified liability franchise/pricing power) and lower credit costs. Maintain Buy recommendation on the name with a revised TP of Rs2,462 (~2.7x FY21E standalone P/B) from Rs2,372 earlier and our OW position in sector EAP. 

Taking into consideration the target price and current market level, HDFC has a potential to rise by nearly 15% and make many investors rich.