Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
HDFC: Will it maintain growth? - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Jul 19, 2004

    HDFC: Will it maintain growth?

    HDFC, the largest housing finance company in the country, has reported a strong 22% growth in its bottomline for 1QFY05, while its topline has grown by over 5%. A fall in interest expenses (consequently improving operating margins) has been the main reason for the improvement in bottomline. The improvement in operating margins has been achieved despite strong rise in operating expenses.

    (Rs m) 1QFY04 1QFY05 Change
    Income from Operations 7,259 7,612 4.9%
    Other Income 17 19 9.8%
    Interest Expenses 4,789 4,645 -3.0%
    Net interest income 2,470 2,967 20.1%
    Other Expenses 350 425 21.3%
    Operating Profit 2,120 2,543 20.0%
    Operating Profit Margin (%) 29.2% 33.4%  
    Provisions for contingencies 85 85 -0.4%
    Profit before Tax 2,052 2,477 20.7%
    Tax 374 431 15.0%
    Profit after Tax/(Loss) 1,678 2,046 22.0%
    Net Profit Margin (%) 23.1% 26.9%  
    No. of Shares (m) 244.4 246.6  
    Diluted Earnings per share* (Rs) 27.2 33.2  
    P/E Ratio (x)   16.5  

    What is the company’s business?
    HDFC is the largest housing finance company in the country with an incremental market share of over 20%. After venturing successfully into commercial banking, the company has set its sight on dominating the Infotech, mutual fund and insurance areas. The company has recently entered in to an agreement with its associate bank, HDFC Bank, in order to retail its products from the bank's branch network. This will go a long way in further extending the reach of HDFC across the country.

    What has driven the performance in 1QFY05?
    Sales:  HDFC has managed to show an improvement in its topline growth as compared to the last quarter. This is primarily on account of a 27% rise in its cumulative advances in 1QFY05. We believe that interest rates on home loans may have bottomed out and due to lack of a fall in the same, the topline growth seems to have improved. In the short-term, this growth is likely to be maintained considering the expertise and track record of HDFC. Also, considering that the housing finance industry is growing at a strong rate of 25%-30%, large players like HDFC have benefited from this robust growth.

    Operating margins:  HDFC continues to reduce its interest expenses by leveraging on lower cost funds and this has helped it to improve its net interest margins strongly in 1QFY05. Falling interest rates have also helped the FI to reduce its interest expenses further, thus resulting in improved operating margins. HDFC continues to reduce its reliance on fixed deposits as a source of funding as they are relatively costlier (marginally) than other sources like term loans and debentures. Due to its excellent credit rating, HDFC is able to garner funds at very low interest rates. We expect operating margins to be maintained at these levels.

    Net Profits:  HDFC continues to show strong growth in its net profits. Due to its good asset quality, the institution does not have to make large provisions for NPAs. HDFC has also maintained its cost to income ratio, indicating that the company is able to limit its client acquisition costs. This may also be in part due to the fact that HDFC has entered into an agreement with HDFC Bank to sell its products from the branch network of the bank. This will help it to limit its operating expenses, thus helping maintain its operating margins.

    What to expect?
    The stock is currently trading at Rs 549, a P/E multiple of 16.5x its annualised 1QFY05 earnings. The company has done well to maintain its growth momentum over the last 2-3 years. However, with expectations of rising interest rates and strong competition in the segment, one needs to be cautious towards the prospects of the company. Its valuations seem stretched at the moment. It remains to be seen how the company is able to address the emerging concerns in the sector.



    Equitymaster requests your view! Post a comment on "HDFC: Will it maintain growth?". Click here!


    More Views on News

    HDFC: Red Flag in Developer Loans (Quarterly Results Update - Detailed)

    Aug 10, 2017

    HDFC starts FY18 on robust loan growth but asset quality slips on increased exposure to developer loans.

    HDFC: Conservative Provisioning tempers down FY17 earnings (Quarterly Results Update - Detailed)

    May 9, 2017

    HDFC ends FY17 on a tepid note as it remains conservative on the asset quality front.

    HDFC: High Provisioning Drags Down Earnings Growth (Quarterly Results Update - Detailed)

    Feb 7, 2017

    HDFC declared its results for the third quarter (3QFY17). The institution has reported 18.4% YoY growth in net interest income while net profits have grown by 11.9% YoY during 3QFY17.

    Shriram Trans Fin: FY17 Ends on a Tepid Note due to Regulatory Headwinds (Quarterly Results Update - Detailed)

    Jun 22, 2017

    Demonetisation led slowdown coupled with shift to stringent bad loan norms keep Shriram Transport Finance on a slow wicket.

    Power Finance Corp: Alignment with RBI Norms Knocks Down FY17 Earnings (Quarterly Results Update - Detailed)

    Jun 14, 2017

    Power Finance Corporation earnings hit by RBI mandated higher provision on state government power generation projects where the recovery continues to be 100%.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    Proxy Plays: A Smart Way to Bet on 'Off Limits' Companies(The 5 Minute Wrapup)

    Aug 4, 2017

    The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 17, 2017 01:35 PM



    Compare Company With Charts