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HDFC – Strong Momentum Continues

May 4, 2010

HDFC Ltd reported net profit of Rs9.3B, up 26% y/y, higher than our and consensus estimates. The earnings surprise arose mainly from higher loan growth and better-than-expected margins (spreads improved from 50bp y/y to ~3.5%). For full year FY10, net profit increased by 24% y/y to Rs28.2B.

Margins even adjusted for the sale of loans to HDFC Bank improved by 20bp to 3.3%. The dual rate loan re-introduced recently would not impact spreads as HDFC has locked in 1-to-2-year funding recently as short-term funding costs have come off by 100-1250bp. HDFC’s cost-to-income ratio improved further from 9% in FY09 to 7.9% in FY10.

Total expenses grew by 16% YoY (-32% QoQ), continuing to lag total income growth. Asset quality saw seasonal improvement:
Non-performing Loans (90 days overdue) ticked down.

HDFC Consensus Estimates and Target Price:
Here is EPS Estimates of HDFC Ltd for FY 11 and FY 12 from leading FIIs who are the major movers of this stock
Goldman Sachs – 119 and 140 with Price Target of Rs 2950
Morgan Stanley – 112 and 130 with Target of Rs 3100
JP Morgan – 120 and 147 with target of Rs 3000
Credit suisse – 116 and 136 with target of Rs 2800
BOFA_Merrill – 114 and 138 with target of Rs 3350

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