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HDFC: Healthy quarter - Views on News from Equitymaster
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HDFC: Healthy quarter
Jul 19, 2013

HDFC declared its results for the first quarter of the financial year 2013-14 (FY14). The institution has reported a 17.5% YoY growth in net interest income while net profits have grown on similar lines at 17.1% YoY during 1QFY14. Here is our analysis of the results.

Performance summary
  • The net interest income grows 17.5% YoY in 1QFY14 on the back of 31% YoY growth in individual loan book and 24% YoY growth in total loan book.
  • Net interest margin falls by meager 0.1% to 3.9% in 1QFY14 from 4.0% in 1QFY13.
  • Other income dropped substantially by 71% YoY in 1QFY14 due to lack of gains on sale of investments.
  • Net profit grows by 17.1% YoY for 1QFY14 which was in line with the increase in net interest income. Lower provisions boosted the profits for the quarter.
  • Capital adequacy ratio and gross NPAs stand at 16.3% and 0.7% respectively at the end of June 2013.
  • The company reported a healthy RoE of 22% during the quarter.
    Standalone financials
    (Rs m) 1QFY13 1QFY14 Change
    Interest income  49,147 55,569 13.1%
    Interest Expense 33,882 37,633 11.1%
    Net Interest Income 15,265 17,936 17.5%
    Net interest margin 4.0% 3.9%  
    Other Income 276 80 -71.0%
    Other Expense 1,342 1,635 21.8%
    Provisions and contingencies 400 300 -25.0%
    Profit before tax 13,799 16,081 16.5%
    Tax 3,780 4,350 15.1%
    Effective tax rate 27.4% 27.1%  
    Profit after tax/ (loss) 10,019 11,731 17.1%
    Net profit margin (%) 20.4% 21.1%  
    No. of shares (m)   1554.0  
    Book value per share (Rs)*   170.0  
    P/BV (x)   4.7  
    * (Standalone book value as on 30th June 2013)

    What has driven performance in 1QFY14?
    • The company's total loan book grew at healthy 19% YoY, exclusive of loans sold out. This was largely supported by robust 24% YoY growth in individual (retail) loans during the first quarter of current fiscal. The buoyancy in individual home loans is attributed to the strong growth that came from Tier 2 and Tier 3 cities. Of the total loan book, the contribution of the individual loan portfolio stands around 70%. Therefore, the first quarter growth for HDFC Ltd was largely driven by the traction in retail portfolio.

      Loan book composition...
      (Rs m) 1QFY13 1QFY14 Change
      Loans
      Individuals 954,130 1,184,290 24.1%
      % of total 64.4% 68.0%  
      Corporate Bodies 509,980 566,200 11.0%
      % of total 32.8% 31.0%  
      Others 18,520 19,440 5.0%
      % of total 1.2% 1.1%  
      Total loans 1,482,630 1,769,930 19.4%

    • Strong loan growth translated into fairly good interest income performance. The net interest income grew by healthy 18% YoY. The spread on loans over the cost of borrowings for the quarter stood at 2.3%. Consequently, the margins remained near to stable at 3.9% for 1QFY14.

    • The other income performance was quite a disappointment due to lack of investment gains. Hence, the other income performance declined during the quarter.

    • The asset quality of HDFC Ltd continues to remain in good stead. The NPAs in individual loan portfolio improved marginally to 0.61% in 1QFY14 from 0.67% in 1QFY13. However, the non-individual portfolio witnessed slight deterioration in asset quality with NPAs moving up from 1.0% in 1QFY13 to 1.08% in 1QFY14. That said, the total NPAs for the quarter declined to 0.77% and remains one of the lowest in the industry. That's because the recovery performance for the quarter stood satisfactory.

    • The provisions for the quarter dropped by almost 25% YoY during 1QFY14. Nonetheless, the company carries an excess provision of Rs 5 bn over and above the regulatory requirements.

    • The cost-income ratio of HDFC Ltd stands as one of the lowest in the industry. The company reported 9% as the cost-income ratio for the first quarter. However, the operating expenses stood higher, reporting 22% YoY growth during 1QFY14.

    • Net profit grew by 17.1% YoY for 1QFY14 which was in line with the increase in net interest income. Lower provisions boosted the profits for the quarter. Consequently, HDFC Ltd reported healthy 22% RoE for the first quarter of the current fiscal.

    • HDFC's capital adequacy ratio (CAR) stood at 16.3%, as against the minimum requirement of 12%. The Tier I capital increased from 12% in 1QFY13 to 14% during 1QFY14. Reduction in risk weights have led to increase in Tier I capital of the company.

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