Housing Development Finance Corporation Price target revised to Rs 2,912

Housing Development Finance Corporation Cluster: EvergreenRecommendation: BuyPrice target: Rs2,912Current market price: Rs1,721
Price target revised to Rs2,912
Result highlights
Housing Development and Finance Corporation (HDFC) reported a bottom line of Rs468.1 crore in Q1FY2009, indicating a growth of 25.6% on a year-on-year (y-o-y) basis and a decline of 23.4% on a quarter-on-quarter (q-o-q) basis. The profit after tax (PAT) was below our estimate of Rs529 crore.
The top line (net interest income) for the quarter came in at Rs651.6 crore, up 36% year on year (yoy) buoyed by a 27.6% growth in loan disbursals and a healthy improvement in the net interest margin (NIM).
The healthy top line growth could not trickle down fully to the net total income due to the moderate growth (16.4% yoy) in the other operating income. Besides this the company did not report any capital gains during the quarter. The net total income stood at Rs750.3 crore, up 28.2% yoy.
The operating expenses were up by 26.6% yoy to Rs86.7 crore, primarily driven by a significant increase in the other expenses (up 44.8% yoy) and the staff expenses (up 35.8% yoy).

Loan approvals during the quarter stood at Rs9,996 crore, up 29.6% yoy from Rs7,713 crore in the corresponding period of the last year. In line, the disbursements during the quarter rose to Rs7,204 crore from Rs5,645 crore in the corresponding quarter of the last year, indicating a 27.6% y-o-y growth.
We have fine-tuned our numbers to factor in the additional information. Importantly, we have raised our cost of equity assumptions in line with higher 10- year G-Sec yields. At the current market price of Rs1,721, the stock trades at 19.8x FY2009E earnings per share (EPS) and 3.6x FY2009E book value/share. We maintain our Buy recommendation with a revised price target of Rs2,912.