HDFC shares seen giving 27% returns! Why you should buy

Investors were very optimistic on NBFC-major Housing Development Finance Corp (HDFC) share price, especially after the company posted a 46% rise in its standalone net profit to Rs 3,023 crore during June 2019 (Q1FY20) quarterly result. A year ago same period, HDFC recorded a net profit of Rs 2,190 crore. Following which, HDFC shares have jumped by a little over 4% on stock exchanges. However, it was the Tuesday’s trading session, where massive buying was witnessed, and the shares rose by nearly 3% in just 1 day. The stock closed at Rs 2,189.60 per piece up by Rs 36.50 or 1.70%. The company even touched an intraday high of Rs 2,216.40 per piece on the index. Experts are very optimistic about HDFC shares, and have put a buy rating on them. In fact, HDFC has the potential of giving nearly 27% return, if invested at current market price. 

Jignesh Shial, Anand Dama and Parth Sanghvi, Research Analyst at Emkay said, “ We maintain our loan growth estimates over FY19-21 intact at ~16% CAGR, considering easing competition, HDFC’s diversified liability franchise and higher coverage. We value the company on a SOTP basis, assigning multiples to each of its key subsidiaries. In our view, AUM growth should remain healthy (on market share gains) with improving spreads (diversified liability franchise/pricing power) and lower credit costs. Maintain Buy recommendation with a TP of Rs2,450 (~2.7x FY21E standalone P/B, ~4.2x FY21E consolidated P/B) and our OW position in sector EAP. The key risk is credit rating downgrades which can lead to defaults in the developer portfolio.”

However, rating agency CLSA has maintained rating and raised the target price from Rs2,730 to Rs2,770 on HDFC.

Aashish Agarwal, analysts at CLSA in their research note said, “HDFC continues to deliver a healthy 17% YoY growth in retail AUMs, led by steady demand (with stronger growth in the affordable segment) and market share gains. Approvals were up 16% YoY (disbursements up 12%), and our interactions indicate that new applications also show steady growth. However, a combination of a conservative approach and some repayments pulled down corporate loans growth to 2% YoY, and total AUMs rose by 13%. Loan growth was slower at 11% due to higher securitisation. While HDFC remains cautious on the corporate segment, we believe growth could improve towards 8-10%. NII rose by 17% YoY (including gain on securitised book), and spreads were stable at 2.3%. HDFC should benefit from a recent fall in bond yields (down 30-50bps in two months) as well as its diversified funding mix and better ratings that will support asset growth.”

Agarwal added, “We believe HDFC is well-placed to grow given its strong funding franchise and will see 16% loan Cagr over FY19-22, driving earnings. ROEs should also improve as leverage is optimised. HDFC remains among our top picks in the sector. We maintain our BUY rating with a SOTP-based target price from Rs2,730 to Rs2,770 including value of its lending business at a 2.8x June 21CL adjusted PB.”