HDFC share price trades flat after April-June quarter earnings miss; should you buy, sell or hold?

Housing development Finance Corporation’s (HDFC) share price was down in the red on Monday morning as investors reacted to the company’s quarterly earnings that were released on Friday. HDFC had reported a 22% on-year rise in net profit to Rs 3,669 crore in the April-June quarter, however, analysts had higher hopes from the mortgage lender. “HDFC’s earnings missed estimates led by sequentially lower core metrics. AuM growth was largely in-line at 17% YoY mainly driven by individual loans while NII and margins were lower,” said analysts at Prabudas Lilladher. 

In the April-June quarter, HDFC’s individual loan disbursements grew by 66% over the corresponding quarter of the previous year. HDFC also noted that the quarter saw the highest percentage growth in individual loans on an AUM basis in the past 8 years. The net interest income (NII) for the fiscal first quarter stood at Rs 4,447 crore compared to Rs 4,125 crore in the previous year. NIM was reported at 3.4%. Although HDFC missed estimates, analysts continue to remain bullish on the stock.

Analysts at Prabhudas Lilladher said that lower Net interest income and higher provisions led to earnings miss for HDFC. But the strong momentum in the individual loan is being seen as a positive. “Individual loan disbursals saw a 66% YoY growth in Q1FY23. Incremental loan growth during the quarter has been mainly from individual loans. On the other hand, nonindividual home loans saw repayments/repayments and resolution of stressed accounts leading to sluggish growth,” analysts said. “We retain our multiple at 2.3x based on FY24 P/ABV and target price of Rs 2,900 with BUY rating,” they added. This translates to an upside of 22% from Monday’s lows.

Nirmal Bang: BUYTarget price: Rs 3,121

“Overall asset quality improved sequentially, led by a decline in non-individual NPAs. The management expects to revert to normalized credit cost of ~20bps in the coming quarters,” analysts at Nirmal Bang wrote. HDFC’s AUM growth was seen to be strong and on expected lines in the quarter under review. Overall AUM growth was strong at 16.9% YoY and 2.7% QoQ. Individual segment AUM grew by 18.4% YoY and 2.7% QoQ on the back of 66% YoY growth in disbursements. “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 (TP) of Rs3,121 (SOTP-based),” they added.

ICICI Direct: BUYTarget price: Rs 2,800

“HDFC Ltd’s share price has grown ~1.3x in past five years. Its market positioning with a healthy demand outlook and strong fundamentals bodes well. However, merger-related uncertainty is expected to keep prices in a range,” ICICI Direct said. The domestic brokerage firm values HDFC at ~2x FY24E core ABV and Rs 1340 for subsidiaries and assigns a target price of Rs 2800 per share. “Merger-related clarification and approval could lead to near-term volatility,” they added.

Kotak Securities: BUYFair value: Rs 2,750 per share

Kotak Securities said that HDFC’s quarterly performance was in-line with their expectations. “HDFC reported in-line performance with solid momentum in the retail business. NIM reported some pressure reflecting delay in resetting interest rates for individual borrowers, even as the general rate transmission in mortgages has been swift in this cycle,” they said. Analysts believe integration with HDFC Bank will drive the business trajectory of HDFC going ahead. Kotak Securities has a fair value of Rs 2,750 pinned on the stock.