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HDFC: Steady performance continues

Oct 23, 2012 | Updated on Oct 30, 2019

HDFC declared its 2QFY13 results. The institution has reported a 27% growth in interest income while net profits have grown by 19% YoY, during the quarter. Here is our analysis of the results.

Performance summary
  • Interest income grows 28% YoY, in 1HFY13 on the back of 22% YoY growth in advances.
  • Net interest margin declines marginally by 0.1% to 4.2% in 1HFY13 from 4.3% in 1HFY12.
  • Other income rises by 14.5% YoY on higher profits booked on sale of investments.
  • Net profit grows by 18.6% YoY, inline with the increase in net interest income (NII).
  • Capital adequacy stands at 16.7% compared to a regulatory requirement of 12%. The gross NPAs (non performing assets) at the end of 2QFY13 stood at 0.77%, compared to 0.82% previously.

Standalone numbers
(Rs m) 2QFY12 2QFY13 Change 1HFY12 1HFY13 Change
Interest income 40,771 51,753 26.9% 78,777 100,901 28.1%
Interest Expense 26,905 35,414 31.6% 52,054 69,296 33.1%
Net Interest Income 13,865 16,339 17.8% 26,723 31,604 18.3%
Net interest margin       4.3% 4.2%  
Other Income 921 1,019 10.6% 1,130 1,295 14.5%
Other Expense 1,361 1,821 33.8% 2,628 3,515 33.8%
Provisions and contingencies 48 56 16.1% 93 104 11.9%
Profit before tax 13,377 15,481 15.7% 25,132 29,280 16.5%
Tax 3,670 3,970 8.2% 6,980 7,750 11.0%
Effective tax rate 27.4% 25.6%   27.8% 26.5%  
Profit after tax/ (loss) 9,707 11,511 18.6% 18,152 21,530 18.6%
Net profit margin (%) 23.8% 22.2%   23.0% 21.3%  
No. of shares (m)       1538.9  
Book value per share (Rs)*         159.0  
P/BV (x)         4.7  
* (Standalone book value as on 30th September 2012)

What has driven performance in 1HFY13?
  • HDFC's loan book grew at a strong pace (up 22% YoY) in 1HFY13. Inclusive of loans sold (securitized), the growth clocked in at the gross level was 27%. While approvals grew by 18% YoY, the disbursals grew by 21% YoY.

  • The institution saw a 28% YoY increase in interest income and a 18% YoY growth in net interest income during 1HFY13. HDFC was able to maintain its margins above the 4% mark even in a difficult environment. Its net interest margin (NIM) stood at 4.2% in 1HFY13 compared to 4.3% earlier.

    Cost break-up
    (Rs m) 1HFY12 1HFY13 Change
    Individuals 802,680 994,012 23.8%
    % of total 63.2% 64.1%  
    Corporate Bodies 451,442 537,633 19.1%
    % of total 35.5% 34.7%  
    Others 15,802 19,635 24.3%
    % of total 1.2% 1.3%  
    Total loans 1,269,924 1,551,280 22.2%

  • HDFC's gross NPAs (loans outstanding for more than 90 days) aggregated to 0.77% of the loan portfolio in 1HFY13 (0.82% previously). The NPA of the individual portfolio stood at 0.65% while that of the non-individual portfolio stood at 0.89%.

  • In August 2012, HDFC issued and allotted 54.7 m equity shares of Rs 2 each on warrant conversion (warrants were issued in August 2009) and realised an amount of Rs 32.8 m. The proceeds from the exchange of these warrants has been utilised to redeem Zero Coupon Debentures thus the institution has not earned any interest income on the amount (during August - September 2012).

  • HDFC's capital adequacy ratio (CAR) stood at 16.7% (post warrant conversion), as against the minimum requirement of 12% which provides comfort.

  • At the end of September 2012 the unrealised gains on HDFC's listed investments amounted to Rs 202 per share as against Rs 145 per share at the end of September 2011. The cost to income ratio remained relatively benign at 10.7% in 1HFY13, however this came in higher than the 9.4% levels seen last year. Net profits increased by 18.6% in 1HFY13, and for 2QFY13 despite a spike in interest and other expenses.

What to expect?
At the current price of Rs 750.5, the stock is trading at 3.5 times our estimated FY15 consolidated adjusted book value. HDFC has maintained its sustainable growth path and there has not been a compromise on the asset quality front. It has an experienced appraisal team, with focus on low loan to value ratio (LTV) (average of 65%), average ticket size of Rs 21.5 lakhs and it and bases its EMIs on the cash flows of the borrowers. Even in a high interest rate scenario HDFC is relatively more secure than the banks due to its precautionary stance. Its retail borrowings has contributed significantly (78%) to incremental growth. The rest of the growth came from non-individual loans. This shows that there has been a significant uptick and improved sentiments in the housing loan segment. Having said that, most banks have recently reduced their home loan rates and have dropped their processing fees. This may lead to increased competition going forward.

On the conversion of warrants, the institution has mobilized capital which shall hold it in good stead going forward. Even with some moderation in growth, elevated interest rates and additional provisioning, we expect the company to maintain margins and its focus on asset quality going forward. We maintain our 'Hold' view and our target price on the stock from a 2-3 year perspective.

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Jun 25, 2021 10:21 AM