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HDFC: Setting new standards

Aug 19, 2000

Leading housing finance company, HDFC has been in the news for acquisition, product launches, diversification, expansion and e-commerce initiative for the past few months. The company is all set to transform itself from a pure housing finance company to a retail financial super market. HDFC has chosen the acquisition route to increase its assets and customer base. The company has recently acquired controlling stake in two housing finance companies and signed up with two more to acquire housing loans. Increasing the size will bring the economies of scale, which will ultimately benefit the customers. It will also help the company to increase its distribution strength and deliver services & products to a larger customer base more efficiently and cost effectively.

In the scenario of changing technology, HDFC is leveraging the Internet to consolidate its business. It has picked up stake in various portals. These are for pure investments and to draw synergies for its existing business. It is also diversifying into IT enabled services for which it has entered into an agreement with Tata Consultancy Services (TCS) to provide online information, call centres, relationship management, back office data processing facilities, data conversion facility and content for the web. The venture is aimed at cornering a share of the $10 bn IT enabled services market where India has a significant cost advantage.

Apart from the above IT initiatives, HDFC along with HDFC Bank is all set to provide exclusive financial services content to go4i.com, a horizontal portal. It has also set up HDFC Securities to provide online trading. Recently the company has mopped up Rs 6 bn, through its 100% subsidiary HDFC Asset Management Company, which has launched three mutual fund schemes.

Amidst all this expansion HDFC has not lost its focus on housing sector where it is fighting hard to increase its market share. Retail business has become an important component of the company and this segment has seen a significant surge in the demand in the recent past. The company has forayed in this area with innovative product offering and expansion in the branch network.

At the current market price of Rs 501, HDFC is available at a P/E ratio of 15 times its FY00 earnings and 13 times its FY01 projected earnings. The diversification plans of the company gives an impression that the company is losing its focus. But this is not true. For each diversification HDFC has set up a separate company and is not directly involved in most of the ventures. It also means that a significant value is locked in these new ventures, which is not reflected in the valuation of the company.

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