Housing Development Finance Corporation (HDFC) shares will continue to be in focus on November 4, the day after the company reported its September quarter earnings.

HDFC reported a 17.8% year-on-year increase in net profit of Rs 4,454.24 crore in the July-September quarter on strong loan growth.

HDFC’s gross interest income stood at Rs 13,142.93 crore, up 24.2% from a year earlier. Total operating income was Rs 15,027.21 crore, up from Rs 1,221.595 crore a year ago.

Based on insufficient asset management, HDFC’s loan book increased by 16% year-on-year. The lender said in a release that the personal loan book grew by 20% to Rs 5.89 lakh crore. It was the lender’s fastest personal loan book growth in eight years.

Nomura maintained a “buy” rating on the stock with a target of Rs 2,850 per share. It was a quarter in line with expectations, and asset quality continued to improve. Despite increased competition, the company continued to gain market share in core mortgages. According to CNBC-TV18, Nomura sees NIM’s low cyclicality and strong asset quality as further support.

CLSA said personal books rose 19% year-on-year as the company’s results neared the end of the year due to strong loan growth. Net interest margin was flat, and scheduled deposits fell month-on-month. It added that core PPoP is largely consistent, but asset quality is improving. According to CNBC-TV18, the key is for the company to mobilise deposits.

Sharekhan maintained a “buy” rating on the stock, keeping its SOTP-based price target unchanged at Rs 3,025. Demand for housing is very strong, and with the trend of young people buying homes early, this demand looks sustainable and is becoming a big wish for young people. As a leader, HDFC will be able to seize huge opportunities. Management is optimistic about improving the asset quality matrix, further improving collection efficiency.

With personal AUM growth reaching the highest level in the past eight years, high-yield non-personal portfolios are likely to grow, and we expect strong AUM growth going forward. Its credit costs have fallen and are likely below pre-pandemic levels. We believe the company will be the main beneficiary of favourable macro factors.

Motilal Oswal expects a steady margin improvement in the second half of the financial year. HDFC’s total reserves of 2.2% of EAD have provided sufficient reserves for any contingencies in asset quality.

We maintain our FY23/FY24 EPS forecast unchanged. We expect HDFC’s AUM and PAT CAGR of 14% in FY22-24, respectively, which will translate to core RoA/RoE of 2%/13% in FY23/FY24. We reiterate our “Buy” rating on HDFC with a target price of Rs 2,900 (based on Mar’24E SoTP).

HDFC’s AUM growth was in line with expectations, but operationally, it was a miss as margins remained flat. NII was up 15% yearly, in line with AUM growth, and NIM was flat at 2.9%.

Management stated that due to the transmission lag between lending rates and cost of funds (CoF) and changes in the AUM mix (personal loan book is now at 81% compared to 78% in Q2 FY22), NIM faced a wide range of pressure.
However, net interest margins are expected to improve in the coming quarters after the rate hikes are fully passed on to customers.

Management is confident in reducing credit costs to pre-pandemic levels of 20 basis points. Nirmal Bang is optimistic about the merger with HDFC Bank. Stable market share and ability to achieve 2%+ ROA in a growing industry underpin our ‘Buy’ rating on HDFC with a target price (TP) of Rs 3,225 (SOTP based).