HDFC’s Q3 FY2021 numbers were strong with operational numbers beating expectations and reported asset quality improving qoq, with improved growth traction. Net interest income (calculated NII) stood at Rs 4410 cr, up 30.5% yoy and 17.4% qoq, and was in line with expectations. Despite sequentially higher provisions, PAT increased by 1.9% qoq to Rs 2926 cr, mainly due to lower interest costs and hence came above expectations.

COMMERCIAL BREAK
SCROLL TO CONTINUE READING

To facilitate a like-for-like comparison, after adjusting for exceptional items, adjusted profit before tax for Q3 FY21 Rs 3694 cr reflecting a growth of 27% yoy. Overall collection efficiency ratios for individual loans have improved, nearing pre-COVID levels for HDFC. Collection efficiency for individual loans in Decr 2020 stood at 97.6% versus 96.3% in September 2020. AUM growth was healthy at 9% yoy and 2.2% on qoq basis, to Rs 552167 cr. There has been a significant recovery and strong growth in the individual business during Q3 FY21.

See Zee Business Live TV Streaming Below:

Hence, individual loans (comprising 76% of AUM) grew 10% yoy, while non individual loan books grew by 7%. A smart recovery in individual loans has also been seen over 9M FY2021. For Q1 FY2021 HDFC Ltd had disbursed 27% of the amount disbursed in Q1 FY2020, Q2 FY2021 was much better and HDFC disbursed 95% of amount done in Q2 FY20, and in the Q3, disbursement was 126% of Q3FY2020 levels, indicating a strong pick-up in disbursements. Asset quality performance was enthused with reported GNPA at 1.67% (down 14BPS QOQ) basis.

Even on a proforma basis, the GNPA at 1.91% is only 24 bps higher than the reported numbers, and was up by 8 bps qoq for HDFC. Overall collection efficiency ratios for individual loans have improved, nearing pre-COVID levels. Sharekhan highlights that balance sheet strength, consistency, and quality of earnings continue to be the key differentiators for HDFC and will help it regain normalcy faster than peers. HDFC is well-capitalised (Tier-I at 19.9%), which adds to the balance Sheet strength. We have fine tuned our estimates for FY2021E and FY2022E and introduced FY2023E estimates. Sharekhan maintains a Buy rating on the stock with a revised SOTP-based price target of Rs 3100.

HDFC’s Key positives:

NII growth was supported as excess liquidity carried on books have declined. The excess liquidity being carried on books were of Rs 32000 cr for Q1 FY2021 and Rs 28000 cr for Q2 FY21, which for Q3 is only 17000 cr.
Strong asset quality performance, reported GNPA at 1.67% (down 14 bps qoq) basis; even on a Pro Forma basis, the GNPA at 1.91% is only 24 bps higher than the reported numbers.

HDFC’s Key negatives:

Sharp rise in employee costs at Rs 290 cr, up by 90% yoy and 60% qoq basis

HDFC’s Key risk:

Slower recovery in economy, higher slippages may impact earnings outlook