HDFC reported better than expected results for the year ended March 2002. A growth of 14% in income from operations is in line with our projections. However, a 23% rise in earnings is higher than our expectations of 18%, on the back of a sharp improvement in operating margins.
Income from operations
Net interest income
Operating Profit Margin (%)
Provisions and contingencies
Profit before Tax
Profit after Tax/(Loss)
Net profit margin (%)
No. of Shares (m)
Diluted Earnings per share*
During the year, HDFC's loan approvals and disbursements grew at a strong rate of over 31%. Consequently, its interest income on loans increased by 22% in FY02. Lower investment income (mainly from dividend) however, curtailed the topline growth of the company to 14%. The company's investments in subsidiary companies increased by 46% to Rs 4 bn in FY02. These investments are likely to take some time before making any significant impact on HDFC's financial performance. HDFC's entry into new ventures (insurance, IT services and mutual fund) is unlikely to contribute significantly to its topline in the near term.
Interest on loans
Lease rental income
Other operating income
Despite stiff competition in the housing finance market and the consequent intense interest rate war, HDFC improved its operating margins by over 200 basis points to 22.4%. Lowering interest cost and cost control measures accrued higher margins to the company. HDFC's cost to income ratio declined to 16% in FY02 from 19% in the previous year. The company also maintained its asset quality in the tough economic environment. Its net NPA to advances ratio of 0.9% is amongst the lowest in the sector.
At the current market price of Rs 648, HDFC is trading at a P/E of 14x and Price/Book value ratio of 3x. The company's premium valuations are due to its strong growth rates over the last few years, superior quality of its assets and better interest margins. HDFC's higher capital adequacy ratio at 14.5% as on March 2002 would facilitate it in its expansion plans. However, increasing competition from both foreign and other private sector banks in the housing finance market could trim HDFC's earnings growth and consequently its valuations.
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