HDFC Share price: Jefferies reiterates Buy rating with target price of Rs 3300

HDFC's 4QFY21 profit of Rs 32 bn (up 42% YOY; 5% 2yr CAGR) was ahead of estimate. Exit momentum was strong with all-time high retail lending in March & wider NIM. Asset quality was stable with stage-3 loan at 2.3%, restructuring at 0.8% & buffer provision stood at 1.5%. 1Q would be affected by Covid, but can be recouped in 2H. Jefferies trim estimates a bit, reiterate their BUY rating.

Mortgage lending activity was fairly healthy in 4Q and March recorded the highest level of retail loan approvals & disbursements. April had a strong start, but activity has slowed in the past few weeks that will reflect in disbursements in May & June. Still, disbursements towards existing loans continue (construction activity has slowed, not halted) and this will drive the build-up of loans, albeit a tad slower level. Normalisation in activity from 2Q will be key to lifting retail loan growth.

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During 1Q, AUMs grew by 10% YOY with retail AUMs rising 12% and corp loans by 4%. Not only did mgt. stay cautious on corporate lending, but repayment of LRD loans (refinanced by REITs) dragged growth by 700bps of corporate loans. With a low pipeline for REITs, Jefferies believes that such drag shouldn't recur. Hence, corporate loan growth should improve, and we see 13-15% growth in AUMs over FY21-24.

HDFC's stage-3 loans were stable at 2.3% of loans, with the retail segment at 1.2% and corporate loans at 5.7%. Restructured loans are at 0.8% of AUMs (0.9% of loans) with 73% arising from the corporate segment (one client forms 58% of corporate restructured loans). Stage-2 loans declined by 75bps QoQ to 6.3% and include restructured and part of ECLG loans. HDFC has 1.5% of loans held in buffer provisions and these can insulate earnings.

Jefferies cut estimates by 4-5% to factor in slower growth, but reiterate their Buy rating with a target price of Rs 3300 (earlier Rs 3380), including the value of the mortgage lending business at 2.8x Mar-23.