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HDFC: In the 'prime' of health - Views on News from Equitymaster

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HDFC: In the 'prime' of health

Oct 17, 2008

Performance summary
  • Interest income grows 33% YoY in 1HFY09 on the back of 31% YoY growth in advances
  • Net interest margin drops to 3.6% in 1HFY09, from 3.8% in 1HFY08.
  • Cash surpluses and returns on them help growth in other income.
  • Net profit falls due to absence of extraordinary income. Excluding the extraordinary income, net profit grows by 42% YoY in 1HFY09.
  • Lowest level of non-performing loans in 1HFY09 as compared to any half year number in the last decade.

(Rs m) 2QFY08 2QFY09 Change 1HFY08 1HFY09 Change
Interest income 18,398 25,033 36.1% 35,622 47,232 32.6%
Interest Expense 12,237 17,572 43.6% 24,671 33,256 34.8%
Net Interest Income 6,161 7,461 21.1% 10,951 13,976 27.6%
Net interest margin       3.8% 3.6%  
Other Income 488 1,117 129.1% 1,589 2,159 35.9%
Other Expense 822 990 20.4% 1,588 1,957 23.2%
Provisions and contingencies 40 43 7.5% 77 80 3.9%
Profit before tax 5,787 7,545 30.4% 10,875 14,098 29.6%
Tax 2,456 2,203 -10.3% 3,815 4,075 6.8%
Effective tax rate 42.4% 29.2%   35.1% 28.9%  
Profit after tax/ (loss) 3,331 5,342 60.4% 7,060 10,023 42.0%
Extraordinary items 3,132 -   3,132 -  
Net Profit after tax/ (loss) 6,463 5,342 -17.3% 10,192 10,023 -1.7%
Net profit margin (%) 18.1% 21.3%   19.8% 21.2%  
No. of shares (m)       271.5 284.2  
Book value per share (Rs)*         436.0  
P/BV (x)         4.1  
* (Standalone book value as on 31st March 2008)

What has driven performance in 2QFY09?
  • The spike in home loan interest rates during the past 6 months did not show any stress on HDFC’s loan book as the same continued to grow at an even pace (up 31% YoY) despite. While the approvals have grown by 27.6% YoY, the disbursal to sanction ratio has also slowed down to 75% from 74% in 1HFY09. HDFC remains unscathed from the subprime mortgage woes that lenders across the world are bearing the brunt of.

    Loan book break up...
    (Rs m) 1HFY08 1HFY09 Change
    Approvals 189,480 241,800 27.6%
    Disbursements 142,750 177,880 24.6%
    D/A ratio 75% 74%  
    Individuals 414,914 546,422 31.7%
    % of total 66.9% 67.3%  
    Corporate Bodies 191,022 246,012 28.8%
    % of total 30.8% 30.3%  
    Others 14,265 19,486 36.6%
    % of total 2.3% 2.4%  
    Total loans 620,200 811,920 30.9%

  • HDFC’s other operating income grew by 129% YoY in 2QFY09 due to the trebling of surplus cash deployed with the mutual funds. The same may, however, not be sustainable going forward.

  • In 1HFY08, the exceptional income of Rs 3,132 m related to profit on sale of investment of the entire shareholding in Intelenet Global Services, which was earlier an associate company of HDFC.

  • HDFC’s gross NPAs (loans outstanding for more than 90 days) aggregated to 1.04% of the loan portfolio in 1HFY09 as against 1.16% in the corresponding period of the previous year. The balance in the provision for contingencies account was is 1.9 times the regulatory requirement as stipulated by the National Housing Bank. As per the institution, this has been the lowest level of NPAs seen in September for any year in the last decade.

  • HDFC’s capital adequacy ratio (CAR) stood at 15.2%, as against the minimum requirement of 12%.

  • At the end of September 2008 the unrealised gains on HDFC’s listed investments amounted to Rs 207 per share.

What to expect?
At the current price of Rs 1,760, the stock is trading at 3.0 times our estimated FY11 consolidated adjusted book value. HDFC’s unique business model (sales through direct selling agents and arrangement with HDFC Bank) will enable it to sustain a low cost to income ratio and enjoy operating leverage. The management has indicated that the timely re-pricing of loans will ensure that its spreads are protected. We, however, do not envisage the advance growth to remain at the current rates in the near term. Given the lower fund raising cost going forward, we see improving prospects for HDFC, given its risk averseness, in the medium to long term. We maintain our positive view on the stock.

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Mar 25, 2019 02:53 PM