HDFC: Consistent show

But valuations high, having captured the positives, many remain neutral on scrip

Strong traction in the individual loan book, stable asset quality and spreads enabled Housing Development Finance Corporation (HDFC) to meet Street expectations for the September quarter. The stock price remained flat at Rs 750.50 on Monday. While most analysts remain positive on HDFC sustaining its operating performance, many believe the stock, trading at 4.3 times the FY13 estimated book value, appears fairly priced.

Vaibhav Agrawal, vice-president, research (banking), Angel Broking, says, “HDFC is behaving more and more like a defensive scrip, unlikely to fall significantly from the current levels. However, on account of high valuations and significant premium to the Sensex, we continue to remain ‘Neutral’ on the stock."

Strong loan growth
Net interest income grew a healthy 18 per cent to Rs 1,634 crore due to a 22 per cent loan growth, excluding those sold (in line with expectations). This figure inches up to 27 per cent if the loans sold are included, a bit higher than the historical range of 20-25 per cent. The individual book formed 78 per cent of the incremental loan book in the quarter gone by.

STEADY PROSPECTS
In Rs crore	Q2'FY13	FY13E
Net interest income	1,634	6,385
% change y-o-y	17.9	22.5
Spreads (%)	2.3	2.4
BPS change y-o-y	-2	10
Net profit	1,151	4,828
% change y-o-y	18.6	17.1
Price/Book value (x)	-	4.8
Net interest income is the difference between interest earned and paid E: Estimates (prior to results) All figures are on standalone basis Source: Company, Analyst reports

Significant growth in the non-metro tier-II to tier-IV cities, a customer-friendly product portfolio and easing competition from banks were key drivers of the individual loan book. HDFC's corporate loan growth, slowing in the past two-three quarters, inched up to 19 per cent in the September quarter versus a dismal 14 per cent in the previous one. The management remains confident of similar growth in its corporate book. On the whole, HDFC expects to grow its loan book by 18-20 per cent this financial year. A two-fold increase in dividend income also boosted total income.

Spreads, asset quality intact
Asset quality continued to be healthy, with gross non-performing assets improving to 0.77 per cent of the loan portfolio. The management continues to remain positive and has not witnessed any significant pressure on this front. For the September quarter, HDFC made higher provisioning of Rs 40 crore, unchanged sequentially.

Its spreads and net interest margins showed a divergent trend. Sequentially, the spreads remained unchanged, driven by growing contribution of the individual loan book. Conrad D’Souza, member of the executive management, says: "We expect to maintain our spreads in the range of 2.15 to 2.35 per cent."

Agarwal says, "HDFC has been incrementally growing its individual loan book much faster than its corporate book over the last six months.” Profit on sale of investments (Rs 94 crore), came in higher than Street expectations of Rs 50 crore, adding to bottom line growth.