HDFC is India’s largest housing finance company with strong brand equity and market share of approximately 19%. Besides housing loans, HDFC has also been benefiting from the retail reach of its banking subsidiary (HDFC Bank). Over the years, HDFC has emerged as a financial conglomerate by not restricting its ambitions to just housing finance but also venturing into new businesses like insurance, banking and asset management (mutual funds).
Stiff competition against public sector banks that got very aggressive in their home loan offerings thanks to their extensive CASA base (current and savings accounts), made things very difficult for HDFC which lost its market share to banks like SBI in FY09. Most importantly, competing with banks in terms of borrowing costs and passing on the same to its customers impacted the performance of HDFC. However, the institution was reasonably healthy in terms of profitability. In FY09, HDFC’s disbursements grew by 21% YoY, while the approvals have grown by 16% YoY. Meanwhile, HDFC’s other income grew by 82% YoY in the last fiscal due to the increase in gains from surplus cash deployed with the mutual funds. It also managed to retain its NIMs at 3.3%.
HDFC’s gross NPA (loans outstanding for more than 90 days) aggregated to 0.8% of the loan portfolio in FY09 as against 0.9% in the corresponding period of the previous year. While we believe that HDFC will continue to be one of the strongest players in the mortgage finance industry, being a single-product entity and countering competition from peers may cause some hiccups in the times to come. Notwithstanding the fact that our concerns with respect to HDFC’s ability to retain market share and sustain margins remain undiluted, we see improving prospects for the institution given its risk averseness, in the medium to long term.
|Net Interest Income||8,805||8,709||(1.10%)||26,411||30,538||15.60%|
|Net interest margin (%)||3.60%||3.30%|
|Provisions and contingencies||45||50||11.10%||166||175||5.40%|
|Profit before tax||8,871||10,264||15.70%||26,040||31,939||22.70%|
|Effective tax rate||36.50%||28.70%||36.00%||29.30%|
|Profit after tax/ (loss)||7,682||7,334||(4.50%)||24,363||22,826||(6.30%)|
|Net profit margin (%)||34.30%||25.00%||31.30%||21.80%|
|No. of shares (m)||284||284.5|
|Book value per share (Rs)*||461.9|
(Book value as on 31st March 2009)
|(Rs m)||FY08||% of total||FY09||% of total||Change|
|Disbursement / approval ratio||77.30%||80.60%|
* Interest income grows 14% YoY in 1HFY10 on the back of 10% YoY growth in advances * Net interest margin drops to 3.4% in 1HFY10, from 3.6% in 1HFY09. * Cash surpluses and profit on sale of investments help the exponential growth in other income. * Net profit grows due to lower provisioning and controlled operating expenses. * Capital adequacy and net NPAs stand at 14.9% and 1% respectively at the end of 1HFY10.
|Financial performance: A snapshot|
|Net Interest Income||8,353||9,470||13.40%||15,802||17,771||12.50%|
|Net interest margin||3.60%||3.40%|
|Provisions and contingencies||43||45||4.70%||260||260||0.00%|
|Profit before tax||7,600||9,130||20.10%||14,097||16,929||20.10%|
|Effective tax rate||29.70%||27.30%||28.90%||27.40%|
|Profit after tax/ (loss)||5,343||6,640||24.30%||10,021||12,289||22.60%|
|Net profit margin (%)||20.60%||23.90%||20.40%||22.00%|
|No. of shares (m)||271.5||284.9|
|Book value per share (Rs)*||513.9|
- Despite the relaxed interest rates on home loans during the past 6 to 9 months, the same failed to show any substantial impact on HDFC’s loan book as the same grew at a muted pace (up 10% YoY) in 1HFY10 While the approvals have grown by 18% YoY, the disbursal to sanction ratio improved to 79% from 74% in 1HFY09. Having said that HDFC remains unscathed from the subprime mortgage woes that lenders across the world are bearing the brunt of.
- HDFC’s other operating income grew by 270% YoY in 1HFY10 due to the income from sale of investments. The same may, however, not be sustainable going forward.
- HDFC’s gross NPAs (loans outstanding for more than 90 days) aggregated to 0.95% of the loan portfolio in 1HFY10 as against 1.04% 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.
-HDFC’s capital adequacy ratio (CAR) stood at 14.9%, as against the minimum requirement of 12%.
-At the end of September 2009 the unrealised gains on HDFC’s listed investments amounted to Rs 467 per share as against Rs 317 per share at the end of September 2008.