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HDFC Q4 preview: PAT may jump up to 50% YoY amid decline in provisions

Topics HDFC | Q4 Results | Coronavirus

HDFC Q4 preview: Backed by strong individual loan book, healthy net interest income (NII), and fewer provisions, Street expects mortgage lender HDFC to report nearly 50 per cent year-on-year (YoY) increase in net profit for March quarter of FY21 (Q4FY21) on May 7.

"We foresee improvement across earnings drivers (AUM growth, net interest margin and credit costs) for HDFC over FY22-23 spurring a significant rise in ROA and ROE (high teens). We expect 16 per cent AUM CAGR, over 3 per cent NIM sustenance and less than 2 per cent NPA levels," notes Shweta Daptardar, analyst at Prabhudas Lilladher.

Global brokerage HSBC, too, has upgraded HDFC to ‘Buy’ given its dominant market position and execution capabilities which, the brokerage says, should allow it to continue gaining market share. "At 2x FY23e PBV, the core mortgage business is attractively priced and its subsidiaries also continue to deliver healthy business outcomes," it said in a report dated April 9.

Here’s what leading brokerages expect HDFC to deliver:

Given that end-user demand remained healthy in Q4, aided by the stamp duty concession in Maharashtra, leading to steep rise in property transactions, the brokerage expect HDFC to clock a strong growth in the individual business. Overall, it expects the total assets under management (AUM) to rise around 11 per cent YoY to Rs 5 trillion from Rs 4.5 trillion at the end of Q4FY20. Sequentially, this would mean an improvement of 3.3 per cent from Rs 4.89 trillion.

Effectively, the NII is pegged at Rs 4,235.1 crore, up nearly 19 per cent YoY from Rs 3,563.9 crore. On a QoQ basis, it would be up 4.1 per cent from Rs 4,068.1 crore reported in Q3FY21. Net profit, meanwhile, is estimated to jump 44 per cent on year to Rs 3,212.1 crore.

Motilal Oswal Financial Services
The domestic brokerage believes HDFC’s AUM could report a healthy growth of 12 per cent YoY on continued improvement in disbursements. With NII seen at Rs 3,888.8 crore, up around 9 per cent over previous year period, MOFSL expects NIM to expand YoY due to lower cost of funds and capital raise in Q2FY21. 

Further, the pre-tax profit and net profit are projected at Rs 3,545.1 crore and Rs 2,845.9 crore, respectively, up around 30 per cent YoY each. 

On the asset quality front, it cautions investors to watch out for NPAs in the non-retail segment even as it expects HDFC to set aside fewer provisions during the quarter under study. In absolute terms, provisions for NPA may decline to Rs 385.5 crore compared with Rs 724 crore set aside in Q4FY20 and Rs 594 crore in Q3FY21.

Prabhudas Lilladher
Robust disbursements, that are near pre-Covid levels, NII growth of nearly 28 per cent YoY (at Rs 4,569.9 crore), and improved cost efficiencies could drive HDFC’s operating profit to Rs 4,934.2 crore, up 39 per cent YoY from Rs 3,538.9 crore reported in Q4FY20. In Q3FY21, the same was at Rs 4,116.2 crore.

Further, a 61 per cent YoY drop in provisions, at Rs 499 crore, may lift the net profit to Rs 3,318.9 crore, the brokerage says.
Besides, it foresees NIM to expand to 3.75 per cent (from 3.18 per cent YoY and 3.34 per cent QoQ) as need for higher on-Balance Sheet liquidity reduces, lower funding costs, and steady pricing power. 

That said, it says that NPA spike could be imminent with end of moratorium period and pegs gross NPA ratio at 2.08 per cent, up from 1.99 per cent in Q4FY20 and 1.91 per cent in Q3FY21. 

“Developer/Lease Rental Discounting (LRD) book NPAs stand critical on a sequential basis but credit costs would decline marginally to 0.41 per cent from 0.49 per cent QoQ on sufficient provisioning,” it added.

With one of the most cautious estimates, the brokerage estimates HDFC’s net profit at Rs 2,770 crore, up around 20 per cent YoY and down 5 per cent QoQ. The operating profit, too, is seen declining around 1.5 per cent on a quarterly basis, but up 9 per cent YoY, to Rs 3,832 crore.

However, it expects HDFC to deliver a 12 per cent AUM growth led by a strong retail growth. Core NIM, it adds, is likely to expand due to improved business traction. 

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