Nomura remains Neutral on HDFC

Nomura recently met the management of HDFC. The key highlight from the meeting are: good traction on retail mortgages and an incremental shift away from corporate loans; improving liquidity driving market funding costs lower and hence a shift in the borrowing mix.

Nomura expects retail growth to be strong in Q2FY13. HDFC is cautious on corporate loan front and incremental retail versus corporate mix likely to be in the range of 90:10%.

HDFC has repaid Rs.180 billion of bank loans in FY13 so far and replaced it with bonds which are coming 120-140 bps cheaper. The company also recently received Rs.32 billion from warrant conversion. The main sources of funding for HDFC are bank loans, retail deposits and bonds.

HDFC currently trades at 3.3x FY13F ABV. At our TP of INR780, HDFC trades at 3.4x FY13F ABV of INR161.7.

Source : Equity Bulls

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