HDFC: Sustaining growth - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

StockSelect
  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

HDFC: Sustaining growth

Jan 25, 2005

Performance Summary
Reflecting the growth in the Indian mortgage industry, HDFC, India's leading housing finance company, announced enthusing results for the quarter ending December 2004. The company posted healthy growth in its bottomline (29% YoY) on the back of strong improvement in net interest income (25% YoY) as well as improvement in operating margins (13% YoY). Topline growth, which continues to remain healthy, has been partially subdued by the fall (54% YoY) in other income.

Rs (m) 3QFY04 3QFY05 Change 9mFY04 9mFY05 Change
Income from operations 7,448 8,468 13.7% 22,445 24,483 9.1%
Other Income 24 11 -54.2% 62 63 1.6%
Interest Expense 4,749 5,086 7.1% 14,302 14,554 1.8%
Net Interest Income 2,699 3,382 25.3% 8,143 9,929 21.9%
Other Expense 456 498 9.2% 1,287 1,420 10.3%
Operating profit / (loss) 2,243 2,884 28.6% 6,856 8,509 24.1%
Operating profit margin (%) 30.1% 34.1% 13.1% 30.5% 34.8% 13.8%
Provisions and contingencies 120 115 -4.2% 171 164 -4.1%
Profit before tax 2,147 2,780 29.5% 6,747 8,408 24.6%
Tax 380 495 30.3% 1,215 1,550 27.6%
Profit after tax/ (loss) 1,767 2,285 29.3% 5,532 6,858 24.0%
Net profit margin (%) 23.7% 27.0% 24.6% 28.0%
No. of shares (m) 245.1 247.7 245.1 247.7
Diluted earnings per share (Rs)* 28.84 36.90 30.09 36.92
P/E (x) 20.2
* annualised

India's largest housing finance company:
HDFC, India's largest housing finance company, with its strong brand equity and a market share of over 40%, has an extensive reach with 180 branches spread across the country and abroad. The group enjoys high credibility due to its trusted and proactive management. HDFC's strength over the years has been its core business of housing loans. Over the years, HDFC has emerged as a financial conglomerate by not restricting its ambitions to just housing finance but also venturing into new businesses like insurance, banking and asset management (mutual funds).

What drove performance in 3QFY05?

Lower cost of funds: HDFC has continued to reduce its reliance on fixed deposits as a source of funding, as they are marginally costlier than other sources like term loans and debentures. Due to its excellent credit rating, HDFC, during 9mFY05, was able to garner funds at interest rates at significantly competitive interest rates. The economical sourcing of funds has augmented the company's net interest margin (NIM) by 10% YoY. The improvement in net interest margins could also be attributed to its alliance with HDFC Bank that has been retailing HDFC's products from its own branches. This agreement has helped HDFC to further reduce its costs as far as acquiring incremental business is concerned.

Higher rate of disbursements: Loan approvals during 9mFY05 registered a growth of 30% over the last one year, while disbursements during the same period increased by 28%. The same indicates that HDFC is outperforming the average growth in the mortgage market which is growing at a CAGR of 25% over the last 5 years.

Excellent asset quality: The quality of HDFC's loan portfolio continues to be excellent, with net non-performing loans at just 0.1% of total loan portfolio. The company advances loans up to 85% of the value of the property and retains the legal rights to the property till the loans are repaid. This entails it to a large margin of safety and it can sustain its burgeoning credit disbursal with relatively lower risk. Although given its marginal asset slippage, the coverage ratio (provisions to net NPAs) has increased to 133%.

Extended distribution network: In the last quarter, the company set up Home Loans Services India Pvt. Ltd (HLSIL), a distribution company of HDFC, as the sales and marketing arm of HDFC's home loans with a sales staff strength of over 530. Currently, the company has presence in over 50 locations. At the next stage of development, the company is envisaging distribution of the products and services of other HDFC group companies through its retaining network.

What to expect?
At the current price of Rs 754 the stock is trading at 4.6 times its 3QFY05 book value. While valuations are on the higher side, investors have to bear in mind that the company's investments in subsidiaries that have presence in asset management, insurance and banking sector acts as a cushion. Also, the company has been able to maintain strong asset quality over the longer term, which is a matter of comfort. Although the new age competitors (read banks) pose a threat to the company's (home loans) market share, fundamentally, the business seems to be on a strong footing.

To Read the Full Story, Subscribe or Sign In
To Read the Full Story, Subscribe or Sign In


Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms

HDFC SHARE PRICE


Sep 21, 2020 11:23 AM

TRACK HDFC

HDFC - M&M FINANCIAL SERVICES COMPARISON

COMPARE HDFC WITH

MARKET STATS