Most of the analysts retained their bullish ratings and also maintained the target price of the stock with potential upside up to 24 per cent from its last closing price.
CLSA analysts Adarsh Parasrampuria and Mohit Surana said the mortgage lender’s third quarter performance was strong with a big beat on net interest income that increased by 26 per cent year-on-year.
“HDFC’s margins improved by 20 bps QoQ and 30 bps from June quarter lows. Near term margin performance should continue as RBI intends to keep system liquidity in surplus while there are strong incremental mortgage spreads in spite of the rate cut in mortgages,” the duo said.
CLSA has an ‘outperform’ rating on HDFC with a target price of Rs 3,000. This translates into a potential upside of 13 per cent.
Asset quality performance was better than many analyst’s expectations with the gross non-performing loans (NLPs) ratio increasing only 8 bps to 1.9 per cent. Interestingly, even the corporate book witnessed only a 15 bps increase in the proforma GNPL ratio to 4.35 per cent, said Alpesh Mehta, a Research Analyst at Motilal Oswal.
“Disbursements have been picking up MoM and have crossed YoY levels over the past quarter. With declining cost of funds and reduction of excess liquidity on the balance sheet, margins should be stable despite pressure on retail lending yield. CE trends are encouraging,” he said. “With provisions more than GNPLs, we believe the company has made more-than-adequate provisions for any potential asset quality slippages in ensuing quarters.”
The broker is among the most bullish on the company. It has a target of Rs 3,300, which means a potential upside of 24 per cent. On Wednesday, the scrip ended at Rs 2,703.85, up 1.74 per cent on BSE.
The strength of HDFC’s subsidiaries is also giving a sense of confidence on the housing finance company, analysts said, as it is best positioned to tide over any crisis.
“We believe that the company’s balance sheet is one of the strongest, especially given the kind of economic value that is held in the subsidiaries. HDFC’s ability to monetize this economic value and create contingency buffers provides the balance sheet far more strength. We remain structurally positive on the company and expect it to maintain its leadership position in the housing finance industry,” said Raghav Garg and Arjun Bagga of Nirmal Bang Equities.
They believe the stock may deliver 18 per cent returns in the next one year.
