HDFC: Provisions see a spike - Views on News from Equitymaster

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HDFC: Provisions see a spike

Jul 12, 2012

HDFC declared its results for the first quarter of the financial year 2012-13 (1QFY13). The institution has reported a robust 29% growth in interest income while net profits have grown by 19% YoY. Here is our analysis of the results.

Performance summary
  • Interest income grows by a robust 29% YoY in the first quarter of FY13 on the back of 19% YoY growth in advances.
  • Net interest margin sustains at 4% in 1QFY13 compared to 4.1% in 1QFY12 despite an increase in the cost of funds. However, margins decreased compared to 4.4% levels seen in FY12.
  • Other income sees an increase of 32% in 1QFY13.
  • Net profit grows by 19% YoY, inline with the increase in net interest income; however provisions doubled compared to the last quarter.
  • Capital adequacy stands at 14.6% compared to a regulatory requirement of 12%. The gross NPAs (non performing assets) at the end of 1QFY13 stood at 0.79%, compared to 0.83% previously.

(Rs m) 1QFY12 1QFY13 Change
Interest income 38,007 49,147 29.3%
Interest Expense 25,149 33,882 34.7%
Net Interest Income 12,858 15,265 18.7%
Net interest margin 4.1% 4.0%  
Other Income 209 276 31.9%
Other Expense 1,087 1,294 19.1%
Provisions and contingencies 225 448 99.3%
Profit before tax 11,755 13,799 17.4%
Tax 3,310 3,780 14.2%
Effective tax rate 28.2% 27.4%  
Profit after tax/ (loss) 8,445 10,019 18.6%
Net profit margin (%) 22.2% 20.4%  
No. of shares (m)   1488.6  
Book value per share (Rs)*   137.5  
P/BV (x)   4.9  
* (Standalone book value as on 30th June 2012)

What has driven performance in 1QFY13?
  • HDFC's loan book grew at a strong pace (up 19% YoY) in 1QFY13. Including loans sold (securitized), the growth clocked was 23% YoY. While approvals grew by 17% YoY the disbursals grew by 20% YoY, compared to the same period last year.

  • The institution saw a 29% YoY increase in interest income and a 19% YoY growth in net interest income during 1QFY13. HDFC was able to maintain its margins at the 4% mark even in a difficult environment. Its net interest margin (NIM) stood at 4% in 1QFY13 compared to 4.1% earlier. However, margins have declined versus the 4.4% levels seen at the end of FY12.

    Loan book break up...
    (Rs m) 1QFY12 1QFY13 Change
    Individuals 778,860 954,129 22.5%
    % of total 62.7% 64.4%  
    Corporate Bodies 448,233 509,977 13.8%
    % of total 36.1% 34.4%  
    Others 14,585 18,517 27.0%
    % of total 2.4% 2.4%  
    Total loans 1,241,677 1,482,623 19.4%

  • HDFC's gross NPAs (loans outstanding for more than 90 days) aggregated to 0.79% of the loan portfolio in 1QFY13 (0.83% previously). Provisions increased on account of the National Housing Board's provisioning requirements.

  • HDFC's capital adequacy ratio (CAR) stood at 14.6%, as against the minimum requirement of 12%, ensuring sufficient capital to grow in the medium term without any equity dilution. Tier 1 capital adequacy was 11.8% against a minimum requirement of 6%.

  • At the end of June 2012, the unrealised gains on HDFC's listed investments amounted to Rs 181.4 per share as against Rs 157.9 per share at the end of June 2011.

  • The cost to income ratio remained relatively benign at 8.3% in 1QFY13, in line with the levels seen last year.

  • Net profits increased by 19% in 1QFY13 despite a spike in interest expense and an increase in provisioning.

What to expect?
At the current price of Rs 678, the stock is trading at 3.2 times our estimated FY15 consolidated adjusted book value. HDFC has maintained sustainable growth over the past and there has not been a compromise on the asset quality front. It has an experienced appraisal team, with focus on low loan to value ratio (LTV) (average of 65%) and bases its EMIs on the cash flows of the borrowers. Even in a high interest rate scenario HDFC is relatively more secure than the banks due to its precautionary stance. Even with some moderation in growth, and elevated interest rates and additional provisioning, we expect the company to maintain margins and its focus on asset quality going forward. We maintain our 'Hold' view on the stock from a 2-3 year perspective.

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Aug 11, 2020 09:47 AM