Macquarie Capital Securities India on Thursday downgraded HDFC to underperform (from outperform) citing that the mortgage lender used aggressive accounting practices.
In its report ‘last bastion falls', analysts Mr Suresh Ganapathy and Mr Parag Jariwala of Macquarie said: “We believe a structural de-rating is likely because the quality of earnings and ROE (return on equity) reported is being driven more by its corporate book and aggressive accounting practices.”
HDFC reported a net profit of Rs 4,122.62 crore in FY12 and Rs 3,534.96 crore in FY11
However, HDFC Management completely disagrees with the contents of the Macquarie report. “The concerned analysts have not attempted to meet anyone from HDFC before making the report and verify the facts and statements made therein,” it said and added, “moreover, it is surprising that Macquarie in its report as recently as May 7 had put a price target of Rs 775 on HDFC stock with an outperform rating based on the same facts and figures. We are, therefore, unable to understand as to what prompted the analyst to change his recommendation and outlook within a month's time.”
Macquarie analysts, who now set a price target of Rs 550, said: “We believe FY11 and FY12 earnings are overstated by 38 per cent and 24 per cent respectively and reported ROE would have been 600 and 400 bps lower at 16 per cent and 18 per cent respectively. In other words, earnings growth has been managed,” they said.
On the day, the stock of HDFC closed 1.7 per cent lower at Rs 644.60 on the BSE.