HDFC: Slow but steady - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


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

HDFC: Slow but steady

Aug 5, 2014 | Updated on Oct 30, 2019

HDFC declared its results for the first quarter of the financial year 2014-15 (1QFY15). The institution has reported a mere 1.1% YoY growth in net interest income while net profits have grown by 14.6% YoY during 1QFY15. Here is our analysis of the results.

Performance summary
  • Interest income grows by mere 1.1% YoY in 1QFY15 on account of higher expenditure. The individual loan book reports 17% YoY growth and total loan book reports 14.9% YoY.
  • Net interest margin falls by 0.1% to 3.8% in 1QFY15 from 3.9% in 1QFY14.
  • Other income increases quite steadily on the back of higher dividend income.
  • Net profit grows by 14.6% YoY for 1QFY15 on the back of strong other income.
  • Capital adequacy and gross NPAs stand at 17.9% and 0.7% respectively at the end of June 2015.

Standalone financial performance
(Rs m) 1QFY14 1QFY15 Change
Interest income  55,569 61,435 10.6%
Interest Expense 37,633 43,305 15.1%
Net Interest Income 17,936 18,130 1.1%
Net interest margins 3.9% 3.8%  
Other Income  80  3,178 3871.9%
Other Expense  1,635  1,711 4.6%
Provisions and contingencies     300     350 16.7%
Profit before tax 16,081 19,247 19.7%
Tax 4,350  5,800 33.3%
Effective tax rate 27.1% 30.1%  
Profit after tax/ (loss) 11,731 13,447 14.6%
Net profit margin (%) 21.1% 21.9%  
No. of shares (m)   1566.9  
Book value per share (Rs)*    174.0  
 P/BV (x)   6.1  
* (Standalone book value as on 30th June 2014)

What has driven performance in 1QFY15?
  • Driven by rapid growth in retail loans, stable spreads and stable asset quality, HDFC reported a benign profitability growth for 1QFY15. The profits for the quarter have grown by 14.6% YoY purely on the back of higher non-interest income. The core income performance has remained subdued, thanks to the increased expenditure. Provisions for the quarter have also gone up, but asset quality remains stable for HDFC.

  • On account of growing demand for loans for home buying by individuals, HDFC’s loan book reported a healthy growth. While the demand for retail loans has remained strong, 86% of the incremental growth in loan book during the quarter has come from individual loan portfolio. The institution reported robust 15% YoY growth in total loan book and the individual loan book has grown 17% YoY. The individual loan disbursements continue to grow at a rapid pace. Overall, the individual loans comprise 71% of the total loan book.

  • However, healthy loan book has failed to translate into a strong net interest income performance by HDFC during 1QFY15. That’s because the interest outgo has been on the higher side. Therefore, the spreads have remained at 2.3% levels during 1QFY15 , same as the year before. The net interest margins (NIMs) have fallen second consecutive quarter in a row; albeit by meager 0.1% to 3.8% in 1QFY15 from 3.9% in 1QFY14.

  • The other income has stood on the higher side on the back of higher dividend income reported during the first quarter.

  • The operating costs have gone up by 4.6% YoY during 1QFY15. The cost-income ratio at 8% has remained benign and stands as one of the lowest in the industry.

  • The provisions for the quarter have witnessed an uptick. While the provisions spiked 16.7% YoY for 1QFY15. While higher proportion of this provisioning is general in nature. It stands as 0.94% of the total loan portfolio as at the end of June 2014.

  • The gross non-performing assets (GNPAs) stood at 0.7% of the portfolio as at June 30, 2014 as against 0.77% a year ago. The individual portfolio has reported 0.55% as GNPAs; while the non-individual portfolio stood at 1.01%. Nonetheless, the asset quality of HDFC Ltd continues to be one of the best in the industry.

  • The capital adequacy for the company ahs remained at higher levels of 17.9% as at the end of June quarter 2014, with Tier I comprising of 15.6%.
What to expect?
At the current price of Rs 1063, the stock is trading at 4.1 times our estimated FY17 adjusted book value.

The June quarter showed a muted start to the fiscal for HDFC Ltd. That said, we are particularly enthused with the stability in asset quality and spreads despite the testing times. Led by strong demand from the retail customers, HDFC’s loan book is poised to grow. We expect the business growth to remains strong and margins stable for the company going forward.

HDFC Ltd has moved up steadily and the stock has accelerated almost 27% during the last one month. Hence, we reiterate HOLD rating for the stock and reckon it as a good long-term bet given the resilient balance sheet, sustained margins and impeccable asset quality.

To Read the Full Story, Subscribe or Sign In
To Read the Full Story, Subscribe or Sign In

India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms


Jun 25, 2021 12:10 PM