1 Stock to Watch- HDFC Limited

HDFC Limited is one of the stocks which should be on the Investor’s Watchlist. Housing Development Finance Corporation (HDFC) is a Housing Finance Company and is a parent company of many strong companies like HDFC Bank, HDFC Life, etc. So Let’s discuss certain reasons behind this psychology of keeping this stock on the watchlist.

Introduction:

HDFC Limited has announced its Q1FY22 results and has reported a sluggishness in the results on yearly basis. The results were quite muted. But there are certain points to look at in the company which will be discussed in this article as we move ahead.

HDFC Limited- Key Growth Drivers:

1) Improving Real Estate Cycle in India

• HDFC Limited seems to be a Direct benefit to Housing Finance Companies.
• Post Stake Sale in Gruh Finance, HDFC Limited is tapping big opportunities in the Affordable Housing Segment
• In Q1FY22, HDFC Limited Individual Loans reported 22% growth YoY.

2) Strong Positioning in Debt Market:

• Many Institutional Investors like Debt Mutual Funds prefers to invest in Debt Instrument of strong players like HDFC Limited, Bajaj Finance, etc.
• Strong Demand for Big Groups like HDFC from Investors will help these companies to raise their Cost of Funds at very Competitive Rates against the market.

3) Well-Built Deposit Book:

• Robust Growth in Deposit Book driven by Retail Deposits.
• Thus, HDFC Limited is having a well-diversified Liability Mix.

4) Strong Balance Sheet:

• The company has made a strong war chest built with a Capital Adequacy Ratio at 22% as of June 30, 2021.
• As per Regulatory Norms, the Minimum Requirement of Capital Adequacy Ratio is at 15%.
• HDFC Limited is also having a healthy provisioning buffer.

Valuation:

HDFC Limited besides having its core business operation also owns Major Subsidiaries and Associates like HDFC Bank, HDFC Life Insurance, HDFC AMC, and HDFC Ergo General Insurance. The company may also come up with the IPO of HDFC Ergo General Insurance Company which can also lead to some value unlocking of the stock. Hence looking at the favorable prospect and the value unlocking opportunity, HDFC Limited can prove to be a good stock and hence one should keep this stock on their radar. Follow due diligence before making any investment decision.