Optimistic on future of the real estate, service sector to take longer to recover – HDFC

Update on the Indian Equity Market:
On Wednesday, Nifty ended 1.0% higher at 13,529 with banks outperforming. The top gainers for Nifty 50 were GAIL (+8.3%), Sun Pharma (+5.7%), and IndusInd Bank (+4.9%) while the losing stocks for the day were Nestle (-2.6%), Kotak Bank (-1.5%), and Titan (-1.3%). The top gaining sectors were Media (+3.8%), Pvt bank (+1.7%), and Bank (+1.5%). The losing sectors were PSU Bank (-1.0%), Metal (-0.5%), and Auto (-0.1%).

Edited excerpts of an interview with Mr Deepak Parekh, Chairman, HDFC dated 09th December 2020 from CNBC TV 18:

Mr Parekh is optimistic about the future of the real estate sector, especially the small homes. However, he believes the service sector is going to take long before it recovers.
The pain, the struggle and difficulty have been in close contact service sectors like restaurants, hotels, transport, civil aviation and these industries still have a long way to recover.

Mr Parekh said October 2020 was a record month for auto as companies saw all-time high numbers of sales.
On inflation, he said that the latest monetary policy has been mature and accurate although the inflation is higher than the comfort zone of the Reserve Bank of India (RBI). RBI has decided not to make any changes and leave the surplus liquidity into the system. He is confident RBI will not destabilize any large non-banking finance company (NBFC) or housing finance company (HFC) even if they don’t want to convert into a bank.

Speaking about NBFCs, Mr Parekh said that there needs to be a change in the RBI Act for corporates to enter the banking system. He does not see it happening immediately. It’s a 2-3 year process. However, in the end, RBI will be more conservative and cautious in their usual style and manner and will differ giving licences to corporate houses.
On the GDP front, Mr Parekh said that 2Q has surprised everyone; although the gross domestic product (GDP) showed a negative growth rate for 2Q, one should look at it as an aberration.

One never expected that September and October would see such fantastic new inflows of application in e-bills, tolls or housing sector compared to previous September-October, which was pre-pandemic.

Consensus Estimate: (Source: market screener website):

The closing price of HDFC was ₹ 2,308/- as of 09-December-2020. It traded at 4.0x/ 3.7x/3.4x the consensus Book value per share estimate of ₹ 569/615/674 for FY21E/ FY22E/ FY23E respectively.
The average consensus target price of ₹ 2,106/- implies a PB multiple of 3x on the FY23E book value of ₹ 674/-.

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