HDFC advances over 3% as Q4 nos beat Street expectations, pares gains later

Shares of HDFC gained 3.4 per cent in the morning trade, to Rs 1,568, on the BSE on Tuesday after the housing financier's March quarter results beat analysts' expectations. The stock, however, erased all the gains and hit an intra-day low of Rs 1,486.45, down 2 per cent. At 3:05 pm, the stock was trading 1.09 per cent lower at Rs 1,500 apiece on the BSE, as against a 0.23 per cent, or 70 points, decline in the benchmark S&P BSE Sensex.

The mortage lender on Monday reported a 22 per cent decline in net profit at Rs 2,233 crore in the fourth quarter, compared to Rs 2,862 crore in the year-ago period. Analysts at Nomura, for instance, had pegged the lender's net profit at Rs 1,931.8 crore, down 32.5 per cent YoY.

The profit before tax (PBT), meanwhile, came in at Rs 2,692 crore, dented by higher provisioning for uncertainties due to the Covid-19 pandemic. Its PBT was Rs 3,691 crore in the same period a year ago. After fair value adjustments, profit on sale of investment, dividend, and provisioning, the profit before tax for the quarter grew 15 per cent at Rs 3,535 crore, as against Rs 3,064 crore in the year-ago period, the lender said.

It made provisions of Rs 1,274 crore in the quarter, up 220 per cent from Rs 398 crore in the same period last financial year, because of Covid-19. Around 26 per cent of the lender’s loan book is under moratorium. In the individual loan segment, 21 per cent of the loan under management is under moratorium.

"HDFC’s core operating profits beat our estimates by 6 per cent and grew 15 per cent YoY to Rs 3,500 crore. Provisions came in at Rs 1,270 crore v/s our estimate of Rs 320 crore. This included Rs 550 crore in Covid-19-related provisions and Rs 220 crore in write-off charges. Adjusted for Covid-19-related provisions, core PBT missed estimates by 7 per cent and was flat YoY at Rs 2,800 crore. NII grew 12 per cent YoY (5 per cent beat), led by stable spreads of 2.3 per cent YoY and QoQ and AUM growth of 12 per cent YoY," wrote analysts at Motilal Oswal Financial Services in their earnings review note.

On the asset quality front, the non-performing assets (NPAs) of the lender rose to 1.99 per cent in Q4FY20, compared to 1.18 per cent in Q4FY19. While individual loans segment saw ratio of bad loans rising 25 basis points to 0.95 per cent from 0.70 per cent, the non-individual segment a steep rise in bad loans ratio to 4.71 per cent from 2.34 per cent. Keki Mistry, vice-chairman and chief executive officer of HDFC said they downgraded two non-individual loans despite them not being an NPA because they saw some stress in these loans. Had they not shown these loans as NPAs, the NPA in non-individual segment would have been 3.7 per cent. 

"In the current liquidity scenario, HDFC has received a disproportionate share of funds across sources, including banks, MFs, life insurers, and deposits. We have built in a ~10bp spread drop in FY21. Asset quality remains a key monitorable going ahead, especially after the extended moratorium ends in August. We cut our FY21/FY22E PAT estimates by 8%/11%. Near-term ROEs are likely to be 11–12%. We maintain Buy, with FY22E target price of Rs 1,905," said the brokerage.