X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 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: Margins, asset quality remain intact - Views on News from Equitymaster
StockSelect
  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

HDFC: Margins, asset quality remain intact
Jul 29, 2015

HDFC declared its results for the first quarter (1QFY16). The institution has reported 16.7% YoY growth in net interest income while net profits have grown by modest 1.2% YoY during 1QFY16. Here is our analysis of the results.

Performance summary
  • Backed by a 13.7% growth in loan book, HDFC posted a 16.7% growth in net interest income in 1QFY16. The individual loan book registered a 25% jump during the quarter.
  • The NBFC has been able to maintain its net interest margin at 3.8%.
  • The other income was lower by 72% as the NBFC had received a dividend of Rs 2,693.5 m from HDFC Bank in the year-ago quarter whereas the dividend income for this financial year will be accounted for in the September 2015 quarter.
  • But higher provisioning constricted net profit growth to a mere 1.2% YoY for 1QFY16.
  • Capital adequacy and gross NPAs stand at 15.8% and 0.7% respectively at the end of June 2015.

Standalone financial performance snapshot
(Rs m) 1QFY15 1QFY16 Change
Interest income 61,435 69,796 13.6%
Interest Expense 43,305 48,634 12.3%
Net Interest Income 18,130 21,162 16.7%
Net interest margins 3.8% 3.8%  
Other Income 3,177 887 -72.1%
Other Expense 1,711 2,028 18.6%
Provisions and contingencies 350 500 42.9%
Profit before tax 19,247 19,520 1.4%
Tax 5,056 5,020 -0.7%
Effective tax rate 26.3% 25.7%  
Deferred Tax Liability 744.4 890.0  
Profit after tax/ (loss) 13,447 13,610 1.2%
Net profit margin (%) 21.9% 19.5%  
No. of shares (m)   1575.0  
Book value per share (Rs)*    205.0  
P/BV (x)    6.4  
* (Standalone book value as on 30th June 2015)

What has driven performance in 1QFY16?
  • HDFC's net interest income grew by a robust 16.7% backed a healthy 13.6% growth in interest income and a controlled rise of 12.3% in interest expense. The strong rise in interest income was an outcome of a 25% jump in its core retail loan portfolio even as the corporate loan portfolio registered a 9.3% growth during the quarter. The total loan book grew by 13.7% in 1QFY16.

    Loan book break up...
    (Rs m) 1QFY15  1QFY16 Change
    Loans
    Individuals 1,385,520 1,595,950 25.0%
    % of total 68.1% 68.0%  
    Corporate Bodies 625,580 683,950 9.3%
    % of total 32.8% 31.0%  
    Others 22,740 32,340 42.2%
    % of total 1.1% 1.4%  
    Total loans 2,033,840 2,312,240 13.7%

  • The NBFC has been able to maintain net interest margin at 3.8% as the spreads remained steady for both individual and non-individual loan portfolios.

  • But the other income earned in 1QFY16 has been lower due to receipt of dividend of Rs 2,693.5 m from HDFC Bank in the year-ago quarter. The receipt of dividend for this year has been in July 2015 and would be accounted in the 2QFY16. As a result the other income fell by 72% during the quarter.

  • The operating costs remained stable excluding the impact of the dividend income. The cost-to-income ratio stood at 9.4% during the quarter.

  • The provisioning for bad loans and contingencies was up by a steep 43% YoY during the quarter. The growth in profits at the net level remained muted at 1.2%.

  • The gross non-performing assets (GNPAs) remained stable at 0.7% of the portfolio as at June 30, 2015. The individual portfolio has reported 0.54% as GNPAs; while the non-individual portfolio stood at 1.04%. However, the asset quality of HDFC Ltd continues to be one of the best in the industry.
What to expect?
At the current price of Rs 1308, the stock is trading at 5.2 times our estimated FY17 adjusted book value.

HDFC has been able to post healthy growth in loan book and maintain net interest margin. What is commendable is that the housing finance company has been able to keep asset quality in check despite the overall slowdown. Going ahead as the economy picks up and with the present Government's strong focus on Smart Cities and affordable housing, credit offtake for housing loans is likely to grow at a robust pace.

Backed by strong demand from the retail customers, HDFC's loan book is expected to grow at a healthy pace. We expect the company to record strong business growth and stable margins stable for the company going forward.

As return ratios do not provide adequate margin of safety that we seek in all our recommendations, we reiterate HOLD rating for the stock based on its strong balance sheet, sustained margins and impeccable asset quality.

To Read the Full Story, Subscribe or Sign In



DISCLOSURES UNDER SEBI (RESEARCH ANALYSTS) REGULATIONS, 2014
INTRODUCTION:
Equitymaster Agora Research Private Limited (hereinafter referred to as "Equitymaster"/"Company") was incorporated on October 25, 2007. Equitymaster is a joint venture between Quantum Information Services Private Limited (QIS) and Agora group. Equitymaster is a SEBI registered Research Analyst under the SEBI (Research Analysts) Regulations, 2014 with registration number INH000000537.

BUSINESS ACTIVITY:
An independent research initiative, Equitymaster is committed to providing honest and unbiased views, opinions and recommendations on various investment opportunities across asset classes.

DISCIPLINARY HISTORY:
There are no outstanding litigations against the Company, it subsidiaries and its Directors.

GENERAL TERMS AND CONDITIONS FOR RESEARCH REPORT:
For the terms and conditions for research reports click here.

DETAILS OF ASSOCIATES:
Details of Associates are available here.

DISCLOSURE WITH REGARDS TO OWNERSHIP AND MATERIAL CONFLICTS OF INTEREST:
  1. 'subject company' is a company on which a buy/sell/hold view or target price is given/changed in this Research Report
  2. Equitymaster and its Associates have financial interest in the subject company.
  3. Equitymaster’s investment in the subject company is as per the guidelines prescribed by the Board of Directors of the Company. The investment is however made solely for building track record of its services.
  4. Equitymaster’s Research Analyst or his/her relative have no financial interest in the subject company.
  5. Neither Equitymaster, it’s Associates, Research Analyst or his/her relative have actual/beneficial ownership of one percent or more securities of the subject company at the end of the month immediately preceding the date of publication of the research report.
  6. Neither Equitymaster, it’s Associates, Research Analyst or his/her relative have any other material conflict of interest at the time of publication of the research report.
DISCLOSURE WITH REGARDS TO RECEIPT OF COMPENSATION:
  1. Neither Equitymaster nor it's Associates have received any compensation from the subject company in the past twelve months.
  2. Neither Equitymaster nor it's Associates have managed or co-managed public offering of securities for the subject company in the past twelve months.
  3. Neither Equitymaster nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
  4. Neither Equitymaster nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
  5. Neither Equitymaster nor it's Associates have received any compensation or other benefits from the subject company or third party in connection with the research report.
GENERAL DISCLOSURES:
  1. The Research Analyst has not served as an officer, director or employee of the subject company.
  2. Equitymaster or the Research Analyst has not been engaged in market making activity for the subject company.
Definitions of Terms Used:
  1. Buy recommendation: This means that the investor could consider buying the concerned stock at current market price keeping in mind the tenure and objective of the recommendation service.
  2. Hold recommendation: This means that the investor could consider holding on to the shares of the company until further update and not buy more of the stock at current market price.
  3. Buy at lower price: This means that the investor should wait for some correction in the market price so that the stock can be bought at more attractive valuations keeping in mind the tenure and the objective of the service.
  4. Sell recommendation: This means that the investor could consider selling the stock at current market price keeping in mind the objective of the recommendation service.
Feedback:
If you have any feedback or query or wish to report a matter, please do not hesitate to write to us.

Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

HDFC SHARE PRICE


Dec 15, 2017 01:45 PM

TRACK HDFC

HDFC - IDFC LIMITED COMPARISON

COMPARE HDFC WITH

MARKET STATS