We recently spoke to HDFC management to address the concerns raised over the rising competition with PSBs due to mortgage loan interest rate differentials. Following are the key take aways:
Softening of interest and reduction in real estate prices has developed retail buyers interest, however, actual sales are expected to take some more time.
Disbursement growth is likely to remain lower. We have further lowered our loan growth estimates to 20% (22% y-o-y earlier) to Rs879 billion during FY09 and 20% in FY10 to Rs1,058 billion.
We have also revised our target price for the stock to Rs1,625 to factor in lower earnings growth. Easing liquidity and softening interest rate signals lowering interest rate for existing customers.
Considerable part of the borrowings yet to be re-priced so as to pass the benefit to the customer. Net spreads will be maintained at over 2%.
At the current market price the stock trades at P/Ex of 13.9x and P/ABVx of 2.4x for FY10. We continue to maintain our accumulate recommendation on the stock with a revised price target of Rs1,625 (earlier Rs1,850)