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HDFC: Will it rise on fundamentals?

Jan 11, 2001

HDFC, Indiaís number one housing finance company is in the limelight since the past few days. The stock has appreciated by more than 9% in the past 15 days. The rally in the stock was fueled by FII increasing their stake in the company to 38%. After touching a high of Rs 600, the stock retreated sharply to the current level of Rs 560. The selling pressure was on the back of RBIís recent announcement that foreign funds are required to take its permission to increase the stake further.

Although, the stock was rising purely on the technicals, HDFC is a fundamentally strong company. It has consistently maintained its performance in the last ten years. Its revenues increased at a compounded annual growth rate of 25% while profits showed a faster growth rate of 34% in the last ten years. Apart from its core business housing finance, the company has also ventured into other emerging growth areas to improve the growth ratios.

Financial Overview
Year End March 31 2HFY00 2HFY01E Change
Income from Operations 10,801 12,662 17.2%
Other Income 18 20 13.6%
Total Income 10,819 12,682 17.2%
Interest Expense 7,648 9,104 19.0%
Other Expenses 362 346 -4.3%
Operating Profit 2,809 3,232 15.0%
Depreciation 196 174 -11.1%
Profit Before Tax 2,614 3,058 17.0%
Tax 322 382 18.6%
Profit After Tax 2,292 2,676 16.8%
No. of shares (m) 119.11 119.11  

Key Ratios
Particulars 2HFY00 2HFY01E
OPM 29.2% 28.1%
Tax / PBT 12.3% 12.5%
NPM 21.2% 21.1%
Cash EPS 41.8 47.8
EPS 38.5 44.9

HDFC has declared a 22% rise in revenues and a growth 20% in profits for the first half ended September 2000. We are expecting the company to maintain a double-digit growth both in topline and profits in the second half of the current year. However, its profit margins are expected to decline marginally with the increasing competition and pressure on interest spread.

Valuations Parameters
Particulars FY98 FY99 FY00 FY01E
Avg. Market Price (Rs.) 376 280 339 560
Price/Book Value (x) 2.5 1.7 1.9 2.8
P/E (x) 15.3 10.0 10.1 14.1
Earnings growth 18.3% 13.8% 20.4% 17.4%
PEG Ratio 0.8 0.7 0.5 0.8


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