X

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.
From inside the house to beyond - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Apr 12, 1999

    From inside the house to beyond

    To quote an Indian fund manager 'there are only two currencies the Indian investor can feel absolutely safe about - gold and Housing Development Finance Corporation (HDFC)'. While this claim may sound exaggerated to some, it is not very far from the truth. That's the reason why the HDFC stock is picked by fund managers who want to lend a degree of stability to their portfolios.

    HDFC is India's premier housing finance company, with an extensive distribution network (52 offices as on July 1999) and with an impressive range of deposits and loan products offered across more than 2,400 towns and cities. Over the years, the company has become the first stop for house-hunters seeking finance. It's a one-stop shop offering a variety of services ranging from home loans (fixed and floating rates), home improvement loans, home extension loans to short term bridging loans to both resident Indians as well non-resident Indians (NRIs).

    Apart from its impressive range of services, HDFC's commitment to high service standards is another reason why borrowers rarely look beyond the company to address their housing finance needs. For instance, HDFC borrowers can expect their cheque within a week, and don't have to wait for over a month, as is the case with some of its competitors. Service standards apart, HDFC has conducted the housing finance business with acumen, applying a very conservative approach. This has seen the company build up a high quality portfolio with loans given against existing mortgage. This allows the company superior credit control with a tight leash on non-performing loans (NPLs).

    Housing finance has received a major fillip with the tax breaks offered in the Union Budget for financial year 2000. The tax sops offered to borrowers witnessed a spurt in demand for housing finance, making it very attractive for other companies (like ICICI) who had kept at arms length from housing finance. Since then, more companies have invaded HDFC's turf offering borrowers with more finance options.

    Contrary to expectations, rising competition and falling lending rates have not a made dent in the company's spreads. (Spread can be defined as the difference between the rate at which a company borrows funds and the rate at which it lends the same.) While other housing companies are facing downward pressure on spreads, HDFC has maintained its level (5 basis points in first half of financial year 2000) largely due to superior cost control.

    In a strategic move, the company has decided to leverage its brand appeal, distribution network and large customer base by venturing into consumer finance. It has set a target of Rs 1.5 billion ($35 million) over 12 months, but could disburse only Rs 100 million ($2.3 million) by July. This is largely due to the company's cautious strategy of lending only to the existing home loan borrowers before moving on to other borrowers.

    Over a period of years, the company's efficiency and strong brand name has caught the eye of overseas investors, with Standard Life Assurance, Europe's largest mutual insurance company, buying 5 percent stake in the company. Warburg Pincus, an investment bank, has also picked up 6 percent stake in HDFC. Both these investors can't seem to get enough of the company and will both buy an additional 10 percent stake in the company from the secondary market. Standard Life will lead HDFC's foray in the insurance and mutual fund (MF) businesses.

    Investment in the MF business will have synergies for both the partners. HDFC's strengths lie in its distribution network, investment management skills, and back office processing. Moreover, HDFC has experience in equity research and advises Commonwealth Equity Fund, the Invesco India Growth Fund and the Standard Life group. In addition to that, HDFC has its own investment portfolio of Rs 24.5 billion ($ 570 million), with approximately Rs 3.4 billion ($79 million) in equities. These synergies will also hold good for HDFC's insurance and securitisation ventures.

    With housing finance needs on the rise, local/foreign banks and finance companies have also stepped into the fray. Competition in its traditional business is bound to have some impact on HDFC. Over a period of time, HDFC's dominating market share will shrink, and spreads will come under pressure. Competition is something it will have to deal with even in the consumer finance, MF and insurance businesses.

    HDFC has played its cards with a lot of caution. Few analysts doubt the prospects of its gamut of businesses. While the transition from its traditional housing business to non-traditional businesses has been smooth so far, only time will tell whether it can duplicate its success in housing in the other businesses.

     

     

    Equitymaster requests your view! Post a comment on "From inside the house to beyond". Click here!

      
     

    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...

    More
    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

    HDFC SHARE PRICE


    Aug 18, 2017 (Close)

    TRACK HDFC

    HDFC 8-QTR ANALYSIS

    Detailed Quarterly Results With Charts

    COMPARE HDFC WITH

    MARKET STATS