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HDFC: Retail loans drive the book

May 6, 2014

HDFC declared its results for the fourth quarter (4QFY14) and financial year 2013-14 results. The institution has reported a 16.8% YoY growth in net interest income while net profits have grown by 10.8% YoY during 4QFY14. For full year FY14, the profits grew by 12.2% YoY. Here is our analysis of the results.

Performance summary
  • Interest income grows 16.8% YoY in 4QFY14 on the back of 26% YoY growth in retail loan book and 15.9% YoY growth in total loan book.
  • Net interest margin falls by 0.1% to 4.1% in FY14 from 4.2% in FY13
  • Other income increases by 33.1% YoY in 4QFY14 on the back of higher gains booked on sale of investments.
  • Net profit grows by 10.8% YoY for 4QFY14 on the back of strong net interest income and other income. For FY14, profits grew by 12.2% YoY on account of lower provisions.
  • Capital adequacy and gross NPAs stand at 17.9% and 0.7% respectively at the end of March 2014.
  • Declared dividend of Rs 14.0 per share for FY14 (dividend yield 1.6%).

Standalone financial performance
(Rs m) 4QFY13 4QFY14 Change FY13 FY14 Change
Interest income 55,612 64,927 16.8% 207,970 238,940 14.9%
Interest Expense 34,398 41,406 20.4% 138,909 160,294 15.4%
Net Interest Income 21,214 23,521 10.9% 69,061 78,647 13.9%
Net interest margin       4.2% 4.1%  
Other Income 1,165 1,551 33.1% 3,507 3,036 -13.4%
Other Expense 1,132 1,241 9.7% 5,389 6,281 16.5%
Provisions and contingencies 250 300 20.0% 1,450 1,000 -31.0%
Profit before tax 20,997 23,531 12.1% 65,728 74,402 13.2%
Tax 5,445 6,300 15.7% 17,245 20,000 16.0%
Effective tax rate 25.9% 26.8%   26.2% 26.9%  
Profit after tax/ (loss) 15,552 17,231 10.8% 48,483 54,402 12.2%
Net profit margin (%) 28.0% 26.5%   23.3% 22.8%  
No. of shares (m)         1560.5  
Book value per share (Rs)*         179.0  
P/BV (x)         4.9  
* (Standalone book value as on 31st March 2014)

What has driven performance in 4QFY14?
  • Driven by rapid growth in retail loans, improved asset quality and uptick in spreads, HDFC reported healthy profitability growth for FY14, slightly exceeding our estimates. The profit for the year has grown by 12.2% YoY, 2% ahead of our estimates on the back of higher interest income. For 4QFY14, the profits grew 10.8% YoY.

  • On account of growing demand for loans for home buying by individuals, HDFC's loan book reported a healthy growth. While the demand for retail loans remained strong, the incremental loans to builders and developers have dipped to below 15% levels. This segment reported meager 9% YoY growth on account of weak economic environment as cited by the management. The institution reported robust 15.9% YoY growth in total loan book and the individual loan book has grown 26% YoY. The individual loan disbursements have grown at a rapid pace reporting 21% YoY growth during FY14 and the average loan size has rose to Rs 22.1 lakh from Rs 21.6 lakh a year ago. Overall, the individual loans comprise 71% of the total loan book.

  • Backed by healthy loan book, HDFC's net interest income grew 13.9% YoY during FY14, well ahead of our estimates. Therefore, the spreads for the full year FY14 remained intact at 2.3% levels. The net interest margins (NIMs) have fallen by meager 0.1% to 4.1% in FY14 from 4.2% in FY13.

  • The other income for the fourth quarter of FY14 has gone up by whopping 33.1% YoY in 4QFY14 on the back of higher gains booked on sale of investments.

  • The operating costs have gone up by 9.7% YoY during 4QFY14. The cost-income ratio at 5% has remained benign. For the full year, the cost-income ratio was reported at 7.7% levels and stands as one of the lowest in the industry.

  • The provisions for the quarter have witnessed an uptick. While the provisions spiked 20% YoY for 4QFY14; the same declined almost 31% YoY for FY14. The provisions stood at 0.96% of the total loan portfolio as at the end of March 2014.

  • The gross non-performing assets (GNPAs) stood at 0.69% of the portfolio as at March 31, 2014 as against 0.77% as at December 31, 2013. The individual portfolio has reported 0.53% as GNPAs; while the non-individual portfolio stood at 1.01%. However, the developer segment has reported rise in NPAs during FY14. Nonetheless, the asset quality of HDFC Ltd continues to be one of the best in the industry.
What to expect?

At the current price of Rs 876, the stock is trading at 3.8 times our estimated FY16 adjusted book value.

The March quarter reported mixed earnings performance for HDFC Ltd. That said, we are particularly enthused with the stark improvement in asset quality, stable spreads and strong credit growth driven by retail loans.

HDFC Ltd has moved up steadily and the stock has accelerated almost 17% during the last one month. Hence, we reiterate HOLD rating for the stock and reckon it as a good long-term bet given the resilient balance sheet, sustained margins and impeccable asset quality.

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Jun 22, 2021 03:35 PM