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HDFC: Looking beyond housing - Views on News from Equitymaster
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  • May 8, 2001

    HDFC: Looking beyond housing

    India’s premier housing finance company, HDFC had posted a healthy growth of 31% in sanctions and 30% in disbursals for the first nine months of FY01. The company’s topline witnessed a growth of 19% while the profits increased by 18% during the same period.

    Housing finance sector has recorded a satisfactory growth of 30% in sanctions and 32% in disbursements for the year ended March ’01. This was on the back of increasing concessions given in the Budget on interest on housing loans. According to the statistics of National Housing Bank (NHB), the housing loan disbursements have shown a compounded annual growth rate (CAGR) of 30% per annum over the past four years. The sector is expected to grow by over 20% in next six months. However, the absence of well developed mortgage market for raising additional funds and higher stamp duties are trimming the growth rate.

    HDFC has also maintained its growth rate over the past four years in line with the industry. Both sanctions and disbursements of the company grew by a CAGR of 28% in the last four years. HDFC is expected to maintain its growth trajectory in the current year by recording a topline growth of over 19%. Its operating margins are however projected to decline to 27.5% from 28.6% in FY00. Although over the years its OPM are sliding, they are one of the highest in the industry. Stiff competition from banks and financial institutions are pressurizing the margins of the company. This will slowdown the net profit growth of the company to 17.4% from a growth of 20.4% recorded in FY00.

    Financial Overview
    (Rs m) FY00 FY01E Change
    Total revenues 20,156 24,096 19.6%
    Operating profit 5,759 6,614 14.8%
    Depreciation 436 394 -9.6%
    Other Expenses 742 827 11.4%
    Profit before tax 4,608 5,443 18.1%
    Tax 590 708 19.9%
    Profit after tax 4,018 4,735 17.8%
    Number of shares 119 119  
    Operating profit margins 28.6% 27.5%  
    Effective tax rate 12.8% 13.0%  
    Net profit margin 20.0% 19.7%  
    Fully Diluted EPS (Rs) 33.7 39.8  

    As can be seen from the table below, HDFC is trading at the highest valuations currently compared to its historic valuations. The company is gradually shifting its focus from mortagage business to other areas of financial markets. HDFC’s current valuations are yet to take into effect its foray into new ventures in IT service, life insurance, asset management and commercial banking. These businesses are expected to contribute more than 40% of its revenues over the next five years.

    Ratio analysis
    Growth ratios FY98 FY99 FY00 FY01E
    Operating income 13.7% 21.6% 15.2% 19.5%
    Other income 331.7% -24.6% -54.0% 85.4%
    Net profits 18.3% 13.8% 20.4% 17.8%
    Approvals 28.9% 25.2% 30.3% 29.7%
    Disbursements 31.1% 24.4% 31.2% 29.2%
    Valuation parameters        
    Price to book value (x) 2.5 1.7 1.9 3.0
    P/E - Avg. (x) 15.3 10.0 10.1 15.4



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