The mortgage business still offers tremendous potential
- Mortgages remain under penetrated despite having moved up to 9% of GDP against approx 2%, five years back
- Banks have started going slow on the mortgage business, which will help HDFC
- Affordability far better – Average Cost of house to Annual Gross Income is at approx 5x against 15-20x, 10 years back
HDFC offers the best mix of growth, quality and returns
- CAGR in loan disbursements of 29% in the last ten years and 42% since inception
- Gross NPAs at approx 1% for last 10 years, net NPAs nil. Net Loan loan loss since inception at 5bps
- ROE almost doubled from 16% in FY97 to an estimated 31% in FY07
No pressure seen on growth or profitability, despite rising interest rates
- Asset-liability management among the best in the financial sector
- Spreads likely to be maintained at greater than 2%, incremental funding more benign now
- LTV of 63% and EMI to MGI of just 20-25%, makes HDFC less vulnerable against rising interest rates
- Post dilution, ROE will still be high at 25% in FY08 and 23% in FY09. FCCB likely to be converted only by 2010
Value of investments estimated at Rs 826 p/s
Life insurance business likely to grow at 55-60% for next 2 years, where HDFC has approx 82% stake (51% economic stake)
Value of Life Insurance business estimated at USD 3.3billion – Rs 311 p/s for HDFC
Net of the value of investments, HDFC quotes at 3.2x FY09E BV and 13.2x FY09E earnings
Maintaining sector Outperformer with a price target of Rs 2,406
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