HDFC rises over 6 pct on strong Q2 numbers, brokerages rain upgrades

Morgan Stanley maintains an overweight rating on HDFC with a target price of Rs 2280. They believe HDFC Q2 was driven by strong core earnings. HDFC reported PAT of Rs 28.7 bn, higher than expectations of Rs 23.15 bn driven mainly by higher PPOP. Core PPOP was 13% above expectation. Underlying NII income was up 21% YoY, 13% ahead of expectations, as the company partially ran down excess liquidity. NII including securitization income was up 16% YoY, 11% above expectation. Operating expenses were down 3% YoY, 3% below expectations.

Performance Highlights:

Individual loan approvals grew 9%; disbursements at 95% levels of the previous year. Individual loan disbursements for the month of September 2020 were 11% higher than in September 2019. 15% growth in individual loans (after adding back loans sold in the preceding 12 months). Spreads stood at 2.27%. Net Interest Margin at 3.2% (3.3% for Q2) while Capital Adequacy at 20.7% as against regulatory requirement of 14%. Consolidated Profit After Tax stood at Rs 4600 cr. The overall collection efficiency for individual loans for the month of September 2020 (the first month after the moratorium) was 96.3%. The collection efficiency for non moratorium customers stood at 99.5%.

Good pick up in Individual Collections:

The overall collection efficiency for individual loans for the month of September 2020 (the first month after the moratorium) was 96.3%. The collection efficiency for non moratorium customers stood at 99.5%. The overall GNPL ratio moved lower to 1.81% and was 1.83% not considering the Supreme Court order. The individual GNPL ratio ticked marginally lower QoQ to 0.84% (0.88% without the SC order) from 0.92%. Non individual GNPL ratio was marginally higher QoQ at 4.19%. Overall loan loss reserves to loans ratio was at 2.6%. Provisions were broadly in line with expectations, with the company taking Rs 2.8bn of

Covid-19 provisions.

Overall AUM growth was 10% YoY (+12% YoY in Q1 FY21). Individual AUM was up 9% YoY (vs. 11% in Q1 FY21) and up 3% QoQ. Non individual AUM was up 13% YoY (-1% QoQ),vs. 15% YoY last quarter. During the quarter ended September 30,2020, individual loan application receipts grew 12% and approvals grew by 9% compared to the corresponding quarter of the previous year. Individual disbursements for Q2 were at 95% levels of the previous year.

Strong leading growth indicators:

Individual approvals (in value terms) registered growth of 31% YoY in September and 58% YoY in October. Individual disbursements registered growth of 11% YoY and 35% YoY respectively. Also, October 2020 approvals and disbursements were 32% and 22%.

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Risks to Upside:

Faster than expected market share gains and Strong pick up in non-individual loan growth.

Risks to Downside:

AUM growth slows significantly and Non-individual loan book shrinks sharply.