HDFC’s reported profit of Rs36.9bn in Q3FY23, was 4% above estimates largely owing to higher–than-expected dividend income and lower provisions in the quarter. Muted AUM growth QoQ, on account of run-down in the Non-Individual book (-5% QoQ), higher margin QoQ and building up of liquidity in anticipation for the merger were the highlights in the quarter.
The quarter was characterised by: i) Muted AUM growth ii) Higher NIM QoQ (+10bps QoQ to 3.5%) iii) Increase in cost-to-income ratio QoQ (120bps QoQ to 10.3%) iv) Improvement in asset quality (GS3 ratio improved 9bps QoQ to 1.8%). AUM growth was muted at 1% QoQ / 13% YoY. Individual AUM grew 3% QoQ / 18% YoY; however, non-individual AUM declined -5% QoQ / -6% YoY. PCR improved ~60bps QoQ to 55.9%. Credit cost in the quarter was 0.2% annualized (similar to Q2FY23). Restructured loans stood at 0.7% (similar to Q2FY23). Additional provisions stood at Rs71.5bn or 1.2% of loans.
HDFC is well-positioned to gain market share within individual loans, despite pricing pressures. Market leadership position, strong capital position, control on cost of funds and lean cost structure are aiding overall performance. Analysts of IIFL Securities reduce their AUM growth estimates to a ~13% Cagr over FY22-25 (~16% earlier), which leads to lower NII. This is partially offset by lower operating expenses. Overall PPOP estimates are lowered by 1-4% over FY23-25; this is largely offset by lower credit costs. Credit cost estimates now stand at ~0.3% over FY23-25. We have built in core earnings Cagr of ~18% (refers to core PBT) over FY23-25. Core ROA is expected to be ~1.9% over the same period. Earnings revised by +1.3/-0.2/-2.3% for FY23/24/25.
Analysts at IIFL Securities maintain Buy with target price of Rs 3085.
