The country’s largest mortgage lender Housing Development Finance Ltd (HDFC Ltd) is better placed to benefit from the resumption of business activities with its diversified funding and better loan quality, brokerage Jefferies said in a note.
The opportunities for portfolio acquisitions can lend upside to earnings estimates and support re-rating for HDFC Ltd, the global brokerage said. Jefferies maintained Buy rating on HDFC and raised its target price to Rs 2,110 per share from Rs 2,000 earlier.
India's steady exit from lockdown should support the business of lenders, but non-bank lenders face another (metaphorical) lockdown from financial markets given concerns about cash flows and asset quality, Jefferies noted.
However, HDFC’s funding access will aid organic growth and inorganic opportunities, it said.
Among private NBFCs, HDFC Ltd has managed to access funding markets well – for bonds, bank loans as well as deposits. In the past two months, HDFC has raised more than Rs 10,000 crore, which equates to 40-50 percent of total funds raised by leading private NBFCs. Its deposit funding lines have also stood-up well and brought half of net fund-raisings in FY20 and momentum continued even in FY21YTD.
“This should support growth not only through organic disbursements but also via opportunities to acquire portfolios from erstwhile peers in housing loans as well as commercial credit,” Jefferies said,
The brokerage expects FY21 to be a weak year of earnings given weak top-line growth and higher provisioning costs.
“However, HDFC is better placed than peers to capitalize on a recovery in FY22. A 200 bps higher loan growth over FY21-22 could drive up to 4 percent upsides to FY22 earnings, on our estimates. Valuations look attractive and we maintain HDFC among our top picks in the financial sector with a target price of Rs 2,110 (Rs 2,000 earlier) including the value of the lending business at 2.4x FY22 adjusted PB,” the global brokerage said.
The gradual lifting of COVID-related restrictions should support the resumption of business activity and income growth. Construction activity is also seeing a resumption in smaller towns as well as larger cities like Bangalore, Gurgaon, Hyderabad, despite some migration of labour. In the housing finance segment, disbursement growth will be led by construction-progress-related payments followed by some pick-up in new demand in the affordable segment, Jefferies noted.
“Even as physical lockdowns are lifted, access to funding (bonds and loans) will be a big challenge among NBFCs to service demand. This reflects a high level of risk aversion among banks as well as bond market participants. This is evident from the polarization of funds towards PSU and select private, whereas the majority of weaker-rated NBFCs are struggling to get growth funds,” the brokerage said.
At 1:05 pm, shares of HDFC Ltd were trading 3.49 percent lower at Rs 1,772.25 on the BSE.
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