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HDFC: Topline takes breather

Jan 11, 2002

HDFC has reported lower than expected growth in income from operations for the third quarter ended December 2001. Its earnings however, showed a strong growth of 22% on the back of lower depreciation charge.

(Rs m) 3QFY01 3QFY02 Change 9m FY01 9m FY02 Change
Income from Operations 5,797 6,652 14.7% 17,184 19,698 14.6%
Other Income 0 11 - 40 38 -4.5%
Interest Expenditure 4,270 4,829 13.1% 12,477 14,177 13.6%
Operating Profit 1,527 1,823 19.4% 4,708 5,520 17.3%
Operating Profit Margin (%) 26.3% 27.4% 27.4% 28.0%
Other Expenses 242 285 17.8% 723 861 19.2%
Depreciation 140 101 -27.8% 360 250 -30.6%
Profit before Tax 1,145 1,448 26.4% 3,665 4,448 21.4%
Tax 154 238 54.7% 505 712 41.1%
Profit after Tax/(Loss) 992 1,210 22.0% 3,161 3,736 18.2%
Net profit margin (%) 17.1% 18.2% 18.4% 19.0%
No. of Shares (eoy) (m) 119.1 120.4 119 120
Diluted Earnings per share* 32.9 40.2 34.9 41.3
P/E (at current price) 15.9 15.5

In this competitive environment also, HDFC's operating margins improved by 100 basis points. Its cost to income ratio however, increased to 16% in 3QFY02 from 15% in the comparable previous quarter. The company's gross mobilization of retail deposits increased by 42% in the first half of the current year. Retail deposits account for 30% of total deposits mobilized by the company. This has helped the company in reducing its average cost of deposits and maintaining higher margins.

HDFC's disbursements and approvals witnessed a healthy growth of 30% and 29% in the first nine months of the current fiscal. The growth was partly fueled by the amalgamation of Home Trust Housing Finance Company. Since the company was amalgamated with effect from October 1, 2000, previous year figures are not strictly comparable. Approvals and disbursements for individual loans were also higher by about 45%. Increased tax incentives and stagnant property prices fueled the growth. HDFC's capital adequacy ratio of 13% will help the company in its business expansion.

HDFC's revenue growth was supported by a 23% rise in interest income and 20% growth in lease rentals. Also, during the first half the company received Rs 514 m from sale of shares in HDFC Asset Management Company to Standard Life. Excluding this revenue stream, income from operations of the company grew by just 12% during the first nine months. The decline in income from capital market related activities (dividend and investment income) trimmed the topline growth.

(Rs m) 9m FY01 9m FY02 Change
Interest on loans 11,741 14,478 23.3%
Fees and other charges 678 745 9.9%
Dividend income 958 751 -21.6%
Lease rental income 318 381 19.7%
Income from investments 2,927 2,715 -7.2%
Profit on sale of investments 563 627 11.5%
Total income 17,184 19,698 14.6%

At the current market price of Rs 640, HDFC is trading at a P/E of 14x and Price/Book value ratio of 3x FY02 projected earnings. The company's full year profits are expected to grow by about 17%-19%.

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