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HDFC- Hidden potential

Jun 27, 2000

The premier housing finance company HDFC is all set to grow with the rising housing demand. Recently, there have been a lot of developments taking place at HDFC, which would make it more popular as a financial supermarket than just a housing finance company. It is the country's largest housing finance company enjoying strong brand equity and a market share of over 55% in the housing finance sector. The company has an excellent reach with 67 branches spread across the country. It also has offices in Dubai and service associates in Kuwait, Oman and Qatar to make it easier for Middle East based Non-Resident Indians to apply for a loan.

HDFC is generally perceived as a housing finance company. However, the company is fast changing its image from merely a housing finance company to a Universal Bank wherein it has already started providing various value added services and plans to launch several related banking and investment products. It has forayed in the high growth areas of consumer finance, consultancy services, leasing, real estate developers, project management and investment consultancy.

During the year HDFC has entered into several joint ventures and agreements. It is setting up Credit Information Bureau (CIB) jointly with SBI, Trans Union and Dun & Bradstreet, which will help it to expand its retail financial market. Its joint venture with Mahindra Group to set up a property portal will simplify the tedious process of acquiring/selling a property.

The housing sector has now been recognized as a potent engine of economic growth. The last budget identified ‘housing for all’ as a priority area. Also the several tax sops given will boost the growth in the housing demand. The industry has huge potential to grow as can be seen in the survey conducted by National Housing Bank (NHB) which indicates that housing shortage over the last two decades has largely been unmet. The recent fall in the property prices, increasing urbanisation and higher consumer income has also contributed in pushing up the demand. Further the interest rates have become competitive which has increased the affordability of the consumers.

Housing Shortage
(m units)FY71FY81FY91FY01E
Rural11.616.314.712.8
Urban3.07.08.26.6
Total14.623.322.919.4

The above mentioned developments have resulted in increased activity in housing construction. Although, it will take some time for this activity to really gather momentum, the growth phase has started. HDFC with its near monopolistic position, strong brand image and high penetration will increasingly stand to benefit in this scenario.

At the current market price of Rs 541, HDFC is available at a PER of 16 times its FY00 earnings. In the booming economy period of FY95, the company used to command P/E in the range of 18-20. Now with the economy on a growth path, the scrip possesses strong growth potential.


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