One-time gains propel HDFC earnings in an otherwise steady Sep quarter

Net interest income up 17%, PBT grows 30% and PAT jumps 61%; management still cautious about wholesale book

Housing Development Finance Corporation (HDFC) on Monday reported above-estimated earnings for the September 2019 quarter (Q2) which were largely boosted by one-off gains. Excluding such gains, the performance of the core business was stable across most parameters. The management, however, remains cautious on the wholesale loan book.

The housing loan major’s profit before tax (PBT) surged about 30 per cent year-on-year to Rs 4,530 crore, 9 per cent above Bloomberg Consensus’ estimate of Rs 4,154 crore. Its 61 per cent year-on-year growth in net profit at Rs 3,961.5 crore was supported by lower tax rates under the new regime and thus was not comparable. 

One-time gains of Rs 1,627 crore (Rs 891 crore in the year-ago quarter) from the part sale of its investments in Gruh Finance and Rs 1,074 crore of dividend income from HDFC Bank (Rs 865 crore) and Gruh Finance (Rs 70 crore) boosted PBT and net profit. Last year, dividends were received in the June quarter.

The core business clocked a healthy 16.7 per cent year-on-year rise in net interest income (NII; the difference between interest earned and expensed) to Rs 3,021 crore and supported the overall performance. Although the reported NII was below the Street’s expectations of Rs 3,189 crore, it should be seen in the backdrop of pain in the sector. This metric falling short of estimates is also because of slower growth in the high-margin wholesale book, which restricted HDFC’s profitability gain during the quarter. 

The negative impact of subdued wholesale book growth was offset by lower cost of funds and strong traction in the individual loan book. The company’s overall spread (a profitability measure for financiers which represents a difference between the rate of interest earned and expensed) came in at 2.26 per cent in Q2, and was within HDFC’s target band of 2.2 per cent to 2.35 per cent, and one basis point higher than the June quarter number. Going ahead, this target will be maintained, says Keki Mistry, VC & CEO of HDFC.

While the corporate loan book grew about 3 per cent, HDFC clocked a 15.3 per cent year-on-year increase in the individual loan portfolio, enabling a 12 per cent year-on-year rise in the overall loan book. The management is sceptical of near-term growth and asset quality of its wholesale book, which could have some bearing on overall loan growth.