HDFC\u2019s Q3FY18 core mortgage PBT was 6% higher than our expectations, with stable q-o-q spreads and marginally better than expected AUM growth. We are negative on incremental spreads in the mortgage business but HDFC Ltd. has been able to maintain stable spreads with improvements in funding costs, and given higher share of high cost deposits (31% of borrowings) it has further levers to maintain spreads in the near term. Also, subs continue to add value for HDFC Ltd. and now account for 50% of our SOP value. With +15% re-rating in the stock in the past month, HDFC is now trading at closer to 15x FY20F core mortgage EPS and limits near-term upside; we think subs will continue to add value and growth in core mortgage has bottomed out. Our Buy call on HDFC Ltd. is based on 15x FY20F core mortgage EPS. Core NII performance supported by stable spreads: HDFC\u2019s NII growth of 14% y-o-y was better than our expectations, with flat q-o-q spreads at 2.3% vs 5bps compression expected by us. Stable spreads\/NIMs were led by (i) 25bps q-o-q compression in funding cost both in the NCDs and bank funding; (ii) HDFC not selling down any loans during the quarter, leading to a sell-down book mix reducing by 110bps q-o-q which supported stable q-o-q NIMs. While no sell-downs was a temporary phenomenon and may reverse, deposit mix remains 31% of overall borrowings, which could be a further lever to maintain spreads, in our view; hence we think HDFC will be best placed to maintain spreads. Mortgage growth bottomed out: Overall AUM growth of 16.5% y-o-y was marginally better (partly due to weak base) than our expectations. Individual AUM growth improved to +17% y-o-y and has clearly bottomed out. HDFC did not sell down any loans to HDFC Bank during the quarter due to GST-related issues, but the same will normalise from Q4FY18F onwards. Corporate book growth was weak at 15% y-o-y and despite that stable q-o-q spreads was a positive outcome. Core mortgage PBT supported by improving growth trends and stable spreads: Core mortgage PBT of Rs\u00a027.4 bn was 6% above our estimate of Rs\u00a025.9 bn and grew 11% y-o-y, supported by stable q-o-q spreads and lower sell-downs which boosted interest income. Asset quality stable: Gross NPAs was largely stable q-o-q, with stable NPA trends both in individual book and corporate book. Individual GNPA% at 67bps and builder book GNPA% at 2.18%. HDFC had a one-time gain from a HDFC Life stake sale via IPO of Rs\u00a052.5 bn: part of this was used to build floating provisions to the tune of Rs 15.8 bn.