X

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: Growing predictably - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Oct 13, 2003

    HDFC: Growing predictably

    HDFC, the housing finance major, has reported September quarter results in line with expectations. It has announced a 22% net profit growth on the back of a 4% growth in topline on a YoY basis. The bottomline growth has been aided mainly by a fall in interest expenses (consequently improving operating margins). The improvement in operating margins has been achieved despite strong rise in operating expenses.

    (Rs m) 2QFY03 2QFY04 Change 1HFY03 1HFY04 Change
    Income from Operations 7,428 7,737 4.2% 14,457 14,996 3.7%
    Other Income 18 21 21.7% 27 39 42.8%
    Interest Expenses 4,966 4,764 -4.1% 9,942 9,553 -3.9%
    Net interest income 2,462 2,974 20.8% 4,515 5,443 20.6%
    Other Expenses 342 447 30.7% 672 832 23.9%
    Operating Profit 2,120 2,527 19.2% 3,844 4,612 20.0%
    Operating Profit Margin (%) 28.5% 32.7%   26.6% 30.8%  
    Provisions for contingencies 42 55 32.1% 117 105 -9.9%
    Profit before Tax 2,096 2,493 19.0% 3,754 4,545 21.1%
    Tax 424 461 8.6% 710 835 17.7%
    Profit after Tax/(Loss) 1,672 2,032 21.6% 3,045 3,710 21.9%
    Net Profit Margin (%) 22.5% 26.3%   21.1% 24.7%  
    No. of Shares (m) 121.7 244.4   121.7 244.4  
    Diluted Earnings per share* (Rs) 27.4 33.3   24.9 30.4  
    P/E Ratio (x)   15.9     17.4  
    *(annualised)            

    HDFC continues to maintain strong growth in disbursal (advances) of housing loans. During the September quarter, the financial institution (FI) has maintained a 30% growth in disbursals. This strong growth in advances has been maintained over the last 3-4 years and, considering the reach and reputation of HDFC, we believe that this growth rate is likely to be maintained in the medium term. This is especially because of the fact that housing finance industry is growing at a strong rate of 25%-30% and large players like HDFC are going to be the key beneficiaries of this robust growth. Having said that, we must also point out that despite the strong growth in advances, the company has not shown a commensurate rise in topline. This is mainly due to falling yields on advances.

    However, falling interest rates have also helped the FI to reduce its interest expenses further, which has resulted in improvement in operating margins. Going forward as interest rates fall at a slower rate, we may observe a slowdown in the growth of HDFC's net interest income. This means that the FI's operating margins may sustain at the 1HFY04 levels. In our research report, we have assumed a 30% growth in HDFC's advances for FY04. We have also assumed a marginal fall in net interest margins of the FI to 3.7% from 3.8% in FY03.

    HDFC was able to wipe out all of its NPAs in FY03. Gross NPAs stood at 0.9% of total advances at the end of FY03. The provisioning made in the June and September quarter may have been more of a precautionary measure as net NPAs are non existent at this point of time.

    The stock is currently trading at Rs 528, a P/E multiple of 16x its annualised 2QFY04 earnings. HDFC has exhibited that it can hold its ground despite stiff competition in the housing loan segment. However, its valuations seem stretched considering that competition is fast catching up. At this point, we believe that investors seem to be factoring in the value of the FI's other business interests like insurance, banking and mutual funds.

    However, a word of caution. Due to lack of credit offtake from the corporate sector, banks have been lending aggressively in the retail (especially housing loans) segment. This means that as banks increasingly put their house in order and get more and more customer-focused, we may see a faster erosion in HDFC's market share going forward. While the growth of the housing loan market seems robust, it is questionable whether HDFC will be able to maintain this strong growth in advances. If investors are valuing HDFC's subsidiaries, then they need to conduct thorough research and give realistic and practical valuations for the same.

     

     

    Equitymaster requests your view! Post a comment on "HDFC: Growing predictably". 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.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    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...

    More
    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

    HDFC SHARE PRICE


    Aug 18, 2017 (Close)

    TRACK HDFC

    HDFC 8-QTR ANALYSIS

    Detailed Quarterly Results With Charts

    COMPARE HDFC WITH

    MARKET STATS