Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
HDFC: Will the story sustain? - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Mar 30, 2005

    HDFC: Will the story sustain?

    While the home loan market continues to grow at a CAGR of 25%, the tax sops (on interest as well as loan repayment) provide a further trigger to the same. Notwithstanding an upward bias in interest rates, if the non-food credit growth has to sustain, it has to be on the back of strength in the housing finance industry. This is further vindicated by the fact that of the total non-food credit growth witnessed during 9mFY05, retail loans, which account for approximately 40% of the total non-food disbursement, have grown at a faster clip of around 40% as against the corporate side (25%). Of this retail segment, housing loans contribute approximately 55% and is the fastest growing retail disbursement.

    A study of the historical movements of growth in PDI (personal disposable income) and housing loan shows that whenever the gap between the two widens, the latter tends to correct itself and trace the income growth (without any significant changes in population growth). However, in the current scenario of easy housing finance at low interest rates coupled with the huge tax benefits provided by the government, there is seemingly a possibility that the gap between the two - PDI and housing loans - would be maintained on the back of sustained growth of housing loans. Albeit, a close watch on rise in domestic interest rates is warranted at the current juncture.

    It also needs to be brought to one's notice that the housing finance companies (HDFC and the like) are no more the sole beneficiaries of the housing loan boom, but their banking counterparts have also snatched a sizeable quantum of market share. HDFC, the market leader, which had over 50% of the market share in the late 90's, is today left with a little over 37%. This is because banking behemoths like SBI and ICICI are fast cashing in on the incremental demand so as to widen their retail credit exposure with minimal slippage risks.

    Meanwhile HDFC also has tried to benefit from the retail reach of its banking subsidiary (HDFC Bank) and has entered into an agreement to source 'home loan accounts' from it. However, 70% of the accounts are sold back to HDFC Bank in the form of Pass Through Certificates (PTCs). Both HDFC and HDFC Bank have benefited from the 'quality' of housing loans and enjoy the best asset quality status in the financial sector.

    Our view

    At the current price of Rs 701, HDFC (standalone) is trading at 4.3 times its 9mFY05 book value. What cannot be denied is the fact that the premium valuation that has been accorded to HDFC is not so much derived on a standalone basis but on the basis of valuation of its subsidiaries. While HDFC Bank and HDFC AMC are the cash cows, the insurance subsidiaries (HDFC Standard Life and HDF Chubb) will also be in the reckoning once they break even.

    FY04 (Rs) Holding Bookvalue EPS
    HDFC 137.61 34.54
    HDFC Bank 24% 88.42 16.73
    HDFC Standard Life 75% 10.01 (0.92)
    HDFC AMC 50% 33.21 9.51
    HDFC Chubb General Ins 74% 9.95 (2.46)
    HDFC Developers 100% 106.21 5.59
    HDFC Investments 100% 16.16 2.95
    HDFC Holdings 100% 0.50 0.01
    HDFC Realty 100% 4.00 (0.57)
    GRUH Finance 100% 120.26 2.51

    Despite the rich valuations, investors have to bear in mind that the company's investments in subsidiaries that have presence in diverse business 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 market share, fundamentally, the business seems to be on a strong footing.

    More Views on News

    HDFC: Red Flag in Developer Loans (Quarterly Results Update - Detailed)

    Aug 10, 2017

    HDFC starts FY18 on robust loan growth but asset quality slips on increased exposure to developer loans.

    HDFC: Conservative Provisioning tempers down FY17 earnings (Quarterly Results Update - Detailed)

    May 9, 2017

    HDFC ends FY17 on a tepid note as it remains conservative on the asset quality front.

    HDFC: High Provisioning Drags Down Earnings Growth (Quarterly Results Update - Detailed)

    Feb 7, 2017

    HDFC declared its results for the third quarter (3QFY17). The institution has reported 18.4% YoY growth in net interest income while net profits have grown by 11.9% YoY during 3QFY17.

    Shriram Trans Fin: FY17 Ends on a Tepid Note due to Regulatory Headwinds (Quarterly Results Update - Detailed)

    Jun 22, 2017

    Demonetisation led slowdown coupled with shift to stringent bad loan norms keep Shriram Transport Finance on a slow wicket.

    Power Finance Corp: Alignment with RBI Norms Knocks Down FY17 Earnings (Quarterly Results Update - Detailed)

    Jun 14, 2017

    Power Finance Corporation earnings hit by RBI mandated higher provision on state government power generation projects where the recovery continues to be 100%.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 18, 2017 (Close)



    Compare Company With Charts