HDFC block deal weighs on shares: What brokerages say

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HDFC Ltd shares have been under pressure in the week after reports that Societe Generale has offloaded shares worth Rs 1,730 crore through an open market transaction. We take a look at what is weighing on the stock, and the outlook going forward. 

About HDFC Limited and its share price performance

  • HDFC Ltd is a major housing finance provider in India. 
  • It has a presence in banking, life and general insurance, asset management, venture capital, realty, education, deposits, and education loans through its various subsidiaries. 
  • It is the 8th largest company in India in terms of market capitalization. 
  • It made a 52-week high on 15 November at Rs 3021 per share and since then, the stock is continuously declining.  Recently, it has come close to its 52-week low of Rs 2286. 
  • It is the worst-performing NIFTY50 stock after Hero Motocorp in the last one month. Currently, it is trading at Rs 2,465 per share. 

Updates on block deal

Yesterday a block deal took place, below are the details:

  • Societe Generale on Tuesday offloaded shares of HDFC Ltd worth nearly Rs 1,730 crore through an open market transaction.
  • As per block deal data on BSE, Societe Generale sold nearly 71 lakh shares at an average price of Rs 2,436.8 apiece.
  • Through a separate transaction, BNP Paribas Arbitrage bought shares of HDFC at the same price.

Highlights from Q3 earnings

HDFC has delivered a decent set of numbers for Q3FY22. Let us look at the highlights:

  • The net profit increased by 18% YoY to Rs 10,342 core.
  • Net Interest Income grew 13% YoY to Rs 18,443 crore. 
  • The non-interest income showed a strong pace of growth at 9.9% to Rs 8,183.6 crore.
  • The bank’s asset quality improved with the gross NPA ratio reducing to 1.26%.

What is causing the share price decline?

The two main reasons for the fall in share price are:

  • HDFC is under pressure on margins because of the increasing competition in the housing finance segment.
  • The underperformance of its listed subsidiaries has weighed heavily on HDFC.

Brokerage View: CLSA and Goldman Sachs

CLSA has cut FY23/24CL estimates by 4-5% mainly due to the margin miss and tougher outlook for incremental mortgage spreads. While the turning rate cycle bodes very well for HDFC Limited’s growth outlook and with recent underperformance valuations is undemanding, the best of margins is behind. “We prefer large private banks (ICICI/SBI/Axis) over HDFC Limited,” noted the brokerage firm. CLSA has upgraded its rating on Housing Development Finance Corporation (HDFC) to 'buy' from 'outperform', while retaining its price target of ₹3,050.

Goldman Sachs has upgraded HDFC to BUY from neutral and also raised the target to Rs 3081 from Rs 2907 earlier. It translates into an upside of nearly 26% from Rs 2454 recorded on 22 February.