Motilal Oswal Financial

HDFC (Buy)

CMP: ₹1889.30

Target: ₹2,150

HDFC is well-placed in the current environment to capture profitable market share. The company has access to low cost of funds, a strong ALM position, comfortable leverage, and adequate provisioning on the balance sheet.

While the tier-I ratio is healthy at 16.6 per cent, it is likely to improve further with the proposed ₹14,000-crore capital raise and stake sale in the insurance business. This would help HDFC face any contingency, fund its own growth requirement, and further capture any inorganic opportunities at the parent (portfolio buyouts) and subsidiary levels (M&A opportunities).

The share of retail customers (by value) that availed moratorium declined approximately by 700 bps in the second phase as compared to the first phase. On the other hand, the share of corporate loans under moratorium remains high at 40 per cent.

Most subsidiaries of HDFC are among the top three players in their respective segments. Due to the Covid-19 crisis, near-term growth is likely to be challenging. However, the medium- to long-term outlook remains strong, especially given the much-lower competitive intensity within housing finance companies (HFCs).

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