Should you buy HDFC shares post Q4FY19 result revelations? Here is what Sharekhan and Kotak have said

The share price of Housing Finance Development Corp (HDFC) ended on a positive note at Rs 1,963.70 per piece up by Rs 12 or 0.61%. However, on Tuesday, the company also touched an intraday high of Rs 1,987.70. Investors were optimistic about HDFC shares post Q4FY19 result announcement. During the last quarter of FY19, HDFC posted a 27% in its net profit to Rs 2,862 crore compared to Rs 2,257 crore in the corresponding period of previous year. Meanwhile, during the quarter, net interest income (NII) came in at Rs 3,161 crore resulting in a growth of 19% from Rs 2,650 crore a year ago same period. That said, net interest margin stood at 3.3%. Experts are now upbeat on HDFC shares going forward. Majority of them have given a buy rating, and overall gains in this company is expected to be over 17% in nearterm. 

Sharekhan post Q4FY19 performance said, “HDFC’s results were steady and better than expectations, with stable margins and healthy asset quality. Notably, in such times, consistency of players such as HDFC is further emphasised. Balance sheet strength, consistency and quality of earnings continue to be the key differentiators for HDFC, which are key support to the premium valuations it enjoys. Given the market dominance of HDFC, we expect the leadership to sustain going forward, as HDFC capitalises on the benefits of reduced competitive pressure from other NBFC peers and PSU banks.”

Experts at Sharekhan added, “HDFC’s strong operating metrics support its credit rating, which enables it to attract best rates and, hence, optimum cost of funds, which are crucial support for margins. The company is well capitalised at CRAR of 19.2% and Tier-1 of 17.6% (minimum requirement of 12% and 6%, respectively) and, hence, is comfortably placed.”

Thereby, Sharekhan has given a buy rating by saying, “HDFC is available at 3.7x its FY2021E book value, which we believe is reasonable considering its strong operating metrics, consistency and sustainable business model. Thus, we maintain our Buy rating on the stock with an unchanged price target (PT) of Rs. 2,300.”

Meanwhile, Nischint Chawathe, M B Mahesh and Dipanjan Ghosh analysts at Kotak Institutional Equities said, “We are tweaking our estimates for HDFC to factor robust loan growth and higher NIM. Post the revision, we expect the company to deliver 16% loan growth and stable NIM during FY2019- 22E. With low leverage due to recently mobilized capital, core RoE in the near term will be muted at 15-16%. In our SoTP-based fair value of Rs2,175, the RGM-based valuation of the mortgage business contributes 45%. We value HDFC Life and HDFC Bank at our fair value estimates and other businesses at market value; we assign 10% holding-company discount. While we expect headwinds for the developer lending segment, we expect HDFC to emerge stronger as compared to most of its peers, thus commanding a rich multiple, when juxtaposed with its RoE.”

The trio added, “ Even as the developer lending sector will likely face headwinds, HDFC is better-placed than peers; it will continue to gain share in retail, particularly the affordable housing segments, likely driving its rich valuations. ADD stays; fair value at Rs2,175 (up from Rs2,150).”