HDFC reported 3QFY09 results on 21 January 2009. Loan disbursals showed sustained growth (22% growth in cumulative ytd disbursals) while loan approvals became stringent (incremental approvals in the quarter was 8% lower than 3QFY08).
More importantly, y-o-y growth in cumulative ytd approval for individual loans was still at 21% indicating that HDFC is cutting down on exposure to riskier loans like developer financing and real estate.
The company continued to move its borrowing mix toward deposits (now accounting for 22% of borrowing compared to 18% in 3QFY08) reporting a y-o-y growth of 57% in deposit base.
Interest income maintained a sequential growth of 13%, highlighting HDFC’s ability to pass on its higher deposit costs to customers. NII was up 5% q-o-q.
Non-interest operating income streams maintained their robust growth with fee, cash management income and lease income posting a combined sequential growth of 28%.
Gross NPL ratio dropped sequentially to 1.01% from 1.04% while the provision buffer ensured a nominal provision charge of Rs120 million in the P&L. RBI’s relaxation in risk weights also pushed up tier-1 ratio to 14.1% from 13.4% in the previous quarter.
HDFC’s cost-to-income ratio continued over the 12% mark, up from 9.3% last year.
Our current target price for HDFC is Rs2,250 that consists of Rs1,700 for the core mortgage business (based on a three-stage residual income model) and Rs550 for the subsidiary value.
At our target price for core business, HDFC trades at 3.3x our FY10E BV.