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HDFC – Core Business Strong + Subsidiary Under Pressure

October 20, 2008

HDFC’s 2QFY09 net income, adjusted for extraordinary gains from sale of stake to Intellenet, grew by 32% yoy. The recurring earnings were driven by a 29% topline growth supported by steady margins and loan growth of +30%. Reported profits, however, declined by 17% yoy as last year HDFC had a one-time gain from sale of its stake in Intellenet.

Non-interest income was strong with yoy growth of 57% yoy. Also, core fee income (lending biz.) increased by +90% yoy. HDFC has been building up retail deposits during the period. While term loans have grown at 5% yoy, retail deposits have grown by 28% yoy. Resources (deposits+ borrowings) have grown 22% yoy and 6% qoq.

HDFC’s housing loan growth could still be +22%; disbursements at +20%. HDFC is expected to report an EPS of Rs 83 for FY09. The sum of the Parts Valuation of HDFC is as follows,
Cores Business – 1,900
Life Insurance – 186
AMC – 67
HDFC Bank – 394
Less Investment in Subs – (109)

HDFC Price Target is Rs 2,438.

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