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HDFC: Mortgage demand remains robust

May 8, 2013 | Updated on Oct 30, 2019

HDFC declared its results for the fourth quarter and financial year 2012-13 (FY13). The institution has reported a 16.9% YoY growth in net interest income while net profits have grown by 17.6% YoY during FY13. Here is our analysis of the results.

Performance summary
  • Interest income grows 21% YoY in FY13 on the back of 31% YoY growth in retail loan book and 24% YoY growth in total loan book.
  • Net interest margin falls by 0.2% to 4.3% in FY13 from 4.1% in FY12.
  • Other income increases by 16.9% YoY in FY13 on the back of higher gains booked on sale of investments.
  • Net profit grows by 17.6% YoY for FY13 which was in line with the increase in net interest income. For 4QFY13, profits grew by 17.3% YoY despite provisions remaining flat.
  • Capital adequacy and gross NPAs stand at 16.2% and 0.7% respectively at the end of March 2013.
  • Declared dividend of Rs 12.5 per share for FY13 (dividend yield 1.4%).

Financial performance: A snapshot
(Rs m) 4QFY12 4QFY13 Change FY12 FY13 Change
Interest income 48,056 55,612 15.7% 170,625 207,969 21.9%
Interest Expense 29,389 34,398 17.0% 111,567 138,908 24.5%
Net Interest Income 18,667 21,214 13.6% 59,058 69,061 16.9%
Net interest margin       4.3% 4.1%  
Other Income 853 1,165 36.5% 2,917 3,507 20.2%
Other Expense 1,030 1,132 9.9% 4,520 5,389 19.2%
Provisions and contingencies 250 250 0.0% 800 1,450 81.3%
Profit before tax 18,241 20,997 15.1% 56,655 65,729 16.0%
Tax 4,980 5,445 9.3% 15,430 17,245 11.8%
Effective tax rate 27.3% 25.9%   27.2% 26.2%  
Profit after tax/ (loss) 13,261 15,552 17.3% 41,225 48,484 17.6%
Net profit margin (%) 27.6% 28.0%   24.2% 23.3%  
No. of shares (m)         1546.3  
Book value per share (Rs)*         161.7  
P/BV (x)         5.5  
* (Standalone book value as on 31st March 2013)

What has driven performance in FY13?
  • HDFC's loan book grew at a strong pace (up 24% YoY) in FY13. Excluding loans sold (securitized), the growth clocked was 21% YoY. The retail loan book (individual loans) grew by 31% YoY in FY13, and excluding loans sold it clocked in a 25% YoY growth.

    Loan book break up...
    (Rs m) FY12 FY13 Change
    Individuals 925,050 1,156,313 25.0%
    % of total 65.7% 68.0%  
    Corporate Bodies 462,070 527,143 14.1%
    % of total 32.8% 31.0%  
    Others 21,630 17,005 -21.4%
    % of total 1.5% 1.0%  
    Total loans 1,408,750 1,700,460 20.7%

  • The company saw a 21.9% increase in interest income and 16.9% growth in net interest income during FY13. The quarterly performance saw a similar robustness. The company was able to maintain its margins above 4% even in a difficult environment. Its net interest margin (NIM) dropped marginally to 4.1% compared to 4.3% in FY12.

  • HDFC's other income increased by 20% in FY13 on higher profit on sale of investments.

  • HDFC's gross NPAs (loans outstanding for more than 90 days) aggregated to 0.75 of the loan portfolio in FY13 (0.82% previously). The balance in the provision for contingencies account is around 1.1% of the overall loan portfolio.

  • HDFC's capital adequacy ratio (CAR) stood at 16.2%, as against the minimum requirement of 12%, ensuring sufficient capital to grow in the medium term without any equity dilution.

  • Net profits increased by 17.6% in FY13 on higher NII growth and other income. The institution's cost to income ratio remained stable and lowest in the sector at 7.8%.

What to expect?
At the current price of Rs 882, the stock is trading at 4.1 times our estimated FY15 adjusted book value. In the current environment and on a higher base of individual home loans, growth for HDFC is unlikely to come in at a sharp clip going forward. While HDFC was able to maintain its margins so far, we still see some pressure on its net interest income (NII) due to lack of pricing power. However, lower cost of funds going forward could ease the pressure. As we mentioned in our December quarter performance review, the stock has already breached our target price. With very little headroom in valuations, we reiterate our Sell view on the stock.

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Jun 18, 2021 (Close)