HDFC stock could see some re-rating following encouraging Q3 show

Strong demand for home loans and improved collection efficiency augur well

Mortgage major HDFC registered results which were in line with expectations, or better, for Q3, 2021-22. At standalone level, profit after tax stood at Rs 3,261 crore compared to Rs 2,926 crore in corresponding Q3, 2020-21, and versus Rs 3,780 crore for Q2, 2021-22.

PAT was aided by lower tax expenses at Rs 787.5 crore as against Rs 826.7 crore year-on-year (YoY). The net interest income grew 7 per cent YoY to Rs 4,284 crore, better than the Street's estimate of Rs 4,107 crore. The spread was 2.26 per cent over the nine months, with an average net interest margin of 3.6 per cent.

December saw the second-highest disbursement of loans ever. The company said the demand for home loans and pipeline of loan applications remains strong. Growth was seen in both affordable housing, as well as high end housing.

The management expressed confidence that all segments including non-individual and individual loan books will see growth in 2021-22, with construction finance expected to drive growth in the non-individual segment, which had seen contraction in the previous fiscal.

During the nine months of the fiscal, the average size of individual loans was Rs 32.3 lakh (previous year: Rs 28.5 lakh). For the quarter, the average size was Rs 33 lakh. The assets under management (AUM) stood at Rs 6,18,917 crore as against Rs 5,52,167 crore YoY. Individual loans comprise 79 per cent of the AUM. The average home loan to the EWS (economically weaker section) and LIG (low income group) segments were Rs 11.1 lakh and Rs 19.5 lakh, respectively.

Collection efficiency improved to an average of 98.9 per cent. The growth in the individual loan book, after adding back loans sold in the preceding 12 months was 24 per cent. The growth in the total loan book after adding back loans sold was 17 per cent.

The gross individual non-performing loans (NPLs) were at 1.44 per cent of the individual portfolio, while the gross non-performing non-individual loans were 5.04 per cent of the non-individual portfolio. The gross NPLs were at Rs 12,419 crore, about 2.32 per cent of the portfolio. Of this, Rs 2,746 crore comprises loans which are less than 90 days due (on December 31, 2021), which now have to be reported as NPLs.

Net of loans less than 90 days due, the NPLs would be individuals, 1.14 per cent, non-individuals, 3.87 per cent and total portfolio, 1.81 per cent. The mandatory provision is Rs 7,450 crore but the actual provisions held were at Rs 13,195 crore. Credit costs declined slightly, which is usually a sign of improving NPL situations. The company’s capital adequacy stood at 22.4 per cent, with Tier 1 capital at 21.7 per cent.  

At consolidated level, HDFC reported a 13 per cent rise YoY in net income at Rs 5,837 crore on a consolidated income of Rs 31,308 crore, which was down from Rs 39,268 crore a year ago, and also lower sequentially from Rs 38,604 crore in Q2, 2021-22. The key contraction was in “Net Gain on investments in Life Insurance Business” which was at minus Rs 305 crore, versus a gain of Rs 10,044 crore a year ago, and Rs 6,417 crore sequentially in the last quarter.

The stock rose 1.8 per cent on results. It has been an underperformer for the past 12 months, returning only 1.45 per cent (including yesterday) – so the market response could signal some sort of positive rerating.