HDFC Q2 preview: Stake sale in Gruh Fin to support PAT, asset quality eyed

Supported by gains from stake sale in Gruh Finance, leading housing finance company (HFC) HDFC is likely to post a net profit up to Rs 3,628 crore in September quarter of FY20 (Q2FY20). It, however, may see a decline in credit growth due to slowdown in the real estate sector, according to analysts. HDFC is scheduled to announce its Q2FY20 results on Monday, November 4.

Analysts at ICICI Securities, for instance, estimate that other income of Rs 3,421 crore, including gain of Rs 1,632 crore from stake sale in Gruh Finance and Rs 1,074 crore dividend from subsidiary, could lead to a PAT of Rs 3,628 crore, up 47 per cent YoY, in the recently-concluded quarter.

According to estimates by Narnolia Securities, the sale of GRUH Finance is expected to have generated around Rs 1,700 crore as at Q2FY20, providing “sufficient liquidity” to the HFC.

Analysts at Prabhudas Lilladher, however, project the company's net profit to decline 39 per cent YoY to Rs 1,951.9 crore. Sequentially, the numbers are expected to drop 21 per cent.

On an average, analysts expect the pre-provision operating profit (PPOP) to come in between Rs 5,126.7 crore and Rs 5,839 crore, up in the range of 32 to 50 per cent.

At the bourses, HDFC has underperformed the benchmark S&P BSE Sensex in the calendar year 2019. The stock has risen 8 per cent during the period, as against an 11 per cent rise in Sensex.

Net Interest Income and credit disbursal

Prabhudas Lilladher pegs NII growth at Rs 3,119.3 crore, up nearly 19 per cent YoY. "Stable spreads will help maintain net interest margins (NIMs) closer to 2.7 per cent levels despite the competition,” it wrote in its note.

Narnolia, on the other hand, estimates NII to come in a little higher at Rs 3,187 crore, up 23 per cent YoY. NII was Rs 3,079 crore in Q1FY20 and Rs 2,594 crore in Q2FY19. NIM stood at 3.5 per cent in the corresponding quarter of the previous fiscal.

As for credit off-take, ICICI Securities opine that the ongoing slowdown within the real estate sector is expected to impact credit growth with credit growth expected at 11.5 per cent YoY to Rs 4,22,687 crore, compared to the normal trajectory of 16- 17 per cent YoY.

Prabhudas Lilladher pegs the credit cost at 0.43 per cent, down 40 bps YoY and 1 bps QoQ.

Meanwhile, Narnolia eyes borrowings at Rs 3.82 lakh crore and asset under management (AUM) at Rs 4.86 crore.

Non-performing Assets

Analysts expect the NPA levels to remain more or less stable, yet maintain a negative bias towards the parameter.

While Prabhudas Lilladher incorporates slight stress on corporate loan book, analysts at Narnolia say the rise in delinquency in the non-individual segment could put stress on the asset quality.

Prabhudas Lilladher pegs the gross NPA (GNPA) ratio at 1.19 per cent, with provisions seen at Rs 461.5 crore.

Key Monitorables

For the quarter ended September 2019, impact on margins due to banks adopting external benchmarking interest rate for home loan, delinquency in the Non-Individual segment, outlook on developer loan portfolio, revival of real estate sector demand and resolution of Jet Airways are some of the key things to watch out for.