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Tuesday, September 22, 2009

Housing Development Finance Corporation Ltd and

1)Scripscan:Housing Development Finance Corporation Ltd
Bse code:500010

Story:Current prices of HDFC do not merit position building, and therefore, its a hold or one can book profits too. HDFC''s Q1FY10 net profit declined 23% q-o-q to Rs. 560 crore driven by a sharp fall in the net interest income (NII) and in the fee and charges. While the growth in its loan-book and in other operating income was satisfactory, the contraction in spreads resulting in the decline of NII is a cause for concern. Presently, the stock trades at a P/B multiple of ~5x, which is fairly high given the uncertainty regarding its insurance businesses. HDFC''s net interest income remained almost flat (+2.6% y-o-y), and declined by 23.2% q-o-q to Rs. 670 crore, following the trend displayed by its average spreads. The year-over-year average spread declined because of a rise in the cost of funds. However, the sequential fall was driven by a sharp dip in yields. Indiabulls estimates the average spread for Q2FY10 at 2.17%. At the close of the first quarter, the assets under management (AUM) stood at Rs 72,500 crore, an increase of 25% sequentially, and 37.5% y-o-y. Expectedly, the proportion of equity has grown from 26% in March ''09 to 28% in June ''09; in line with the recovery in the equity markets. With rising equity markets, the equity component of mutual funds is to continue increasing.

2)Scripscan:Hindustan Construction Company Ltd
Bse code:500185

Story:HCC''s current order backlog of Rs 15,400 crore, 4x FY09 revenues, provides strong earnings visibility over the next couple of years. 83% of its order book comes from high growth sectors like hydro and irrigation projects while transportation contributes the balance. This shift in order book and thus revenues towards hydro power and irrigation projects allows the company some room to expand its margins. Huge investments in both these sectors should allow HCC''s order backlog to witness 9% CAGR over FY09-11E. Strong execution of these orders should translate into 19% revenue CAGR over FY09-11E. Apart from the conventional EPC business, HCC is also developing: 1) one annuity road, 2) one commercial property at Vikroli and 3) a township at Lavasa. Its road BOT project is expected to generate Rs 47.2 crore per annum in the concession period. It has already pre-leased 55% of its commercial property at Rs110/sq ft. HCC''s first town ''Dasve'' at Lavasa is expected to be completed by end FY10. With revenues flowing in from this project, HCC is well positioned to fund the rest of its township project. A shift in the order booking leaves room for the company to expand margins. Its strong execution capability translates into 17% earnings CAGR over FY09-11E.A good buy at declines.

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