The September quarter numbers of Housing Development Finance Corporation (HDFC) appear to have failed to meet market expectations as the stock fell into negative territory after the Q2FY23 scorecard.
HDFC on November 3 reported an 18% year-on-year (YoY) rise in standalone net profit at ₹4,454.24 crore compared to ₹3,780.50 crore in the corresponding quarter of the previous year. Total revenue from operations for Q2FY23 stood at ₹15,027.21 crore, up 23% YoY, versus 12,215.95 crore in Q2FY22.
As of September 30, 2022, the assets under management (AUM) stood at ₹6,90,284 crore as against ₹5,97,339 crore in the previous year. The net interest income (NII) for Q2FY23 stood at ₹4,639 crore, up 13% YoY, against ₹4,110 crore in the same quarter last year.
The stock ended 0.41% lower on BSE on November 3. On the next day, it declined 0.32% to close at ₹2,489.35.
Brokerages remained positive on the stock after the Q2 numbers. Most of them retained their views and highlighted that the stock's performance would depend on HDFC Bank's performance after the proposed merger.
Brokerage firm Phillip Capital maintained a buy call on HDFC stock and revised the target price to ₹2,800 from ₹2,700 earlier.
The brokerage firm highlighted that HDFC's individual home loan segment witnessed impressive growth owing to stability in the job market and a resilient domestic economy.
Phillip Capital believes that HDFC’s superior segment know-how, strict underwriting practices and buffer provision would help it better manage the credit loss.
"With the announcement of the merger with HDFC Bank, HDFC's stock performance is pegged to HDFC bank’s performance and outlook. We are constructive on HDFC Bank and accordingly maintain our positive stance on HDFC as well," said Phillip Capital.
JM Financial maintained a buy call on the stock with a target price of ₹2,755, citing that the company is well-poised to gain market share in the individual home loan segment.
"Individual home loan segment has been in a sweet spot and driving the growth for HDFC. We believe HDFC is well poised to gain market share in a growing market with control over asset quality. We estimate HDFC to deliver a core PPOP (pre-provision operating profit) CAGR of 15% with a PAT CAGR of 16% over FY22-24E, driven by AUM CAGR of 16% and lower credit costs," said JM Financial.
Motilal Oswal Financial Services also maintained a buy call on the stock with a target price of ₹2,900. The brokerage firm said with the company's merger with HDFC Bank announced, taking a view in isolation is difficult. However, the brokerage firm feels HDFC continues to have a strong ‘right to win’ in its standalone mortgage business.
"We expect the margin to exhibit steady improvement over the second half of FY23 (H2FY23). With overall provisions at 2.2% of EAD, HDFC has made adequate provisions for any contingencies in asset quality. We have left unchanged our FY23/FY24 earnings per share (EPS) estimate. We expect HDFC to deliver an AUM and PAT CAGR of about 14% each over FY22-24, which will translate into a core return on assets (RoA)/return on equity (RoE) of 2%/13% in FY23/FY24," said Motilal Oswal.
Brokerage Nirmal Bang Institutional Equities, too, has a buy call on HDFC with a target price of ₹3,225.
Nirmal Bang highlighted that HDFC's management is confident in lowering the credit cost to pre-covid levels of nearly 20bps. Housing demand trends look positive and are expected to drive individual loan growth. The management commentary was positive for affordable housing as well as the high-end segment and indicated that the rising rate environment is not likely to impact overall demand.
"We remain positive about the merger with HDFC Bank. Stable market share in a growing sector and ability to deliver 2%+ ROAs underpin our buy call on HDFC with a target price of ₹3,225 (SOTP-based)," said Nirmal Bang.
According to a MintGenie poll, an average of 25 analysts have a ‘strong buy’ call on the stock.
Disclaimer: The views and recommendations given in this article are those of broking firms. These do not represent the views of MintGenie.