HDFC gains 10% in two days on improved asset quality in September quarter

The stock was trading at its highest level since March 13, 2020 on the BSE

Shares of Housing Development Finance Corporation (HDFC) rose nearly 4 per cent \at Rs 2,116 on the BSE on Tuesday, thus gaining 10 per cent in past two days after the company reported higher than estimated September quarter (Q2FY21) numbers, led by improvement in asset quality and steady assets under management (AUM) growth.

The stock of the housing finance company was trading at its highest level since March 13, 2020. In past one month, it outperformed the market by gaining 18 per cent, as compared to 3.7 per cent rise in the S&P BSE Sensex.

However, HDFC’s net profit dipped 27.6 per cent to Rs 2,870 crore in Q2FY21 from Rs 3,962 crore in the corresponding period a year ago, due to lower other. The numbers for Q2FY21 were not directly comparable with the previous year because it had huge income from dividend and sale of investments in Q2FY20.

The net interest income (NII) rose 21 per cent in Q2 to Rs 3,647 crore from Rs 3,021 crore the previous year. The assets under management (AUM) grew 10.2 per cent to Rs 5.40 trillion in Q2FY20 from Rs 4.90 trillion a year ago. Individual loans comprise 75 per cent of AUM.

Asset quality improved with gross non-performing assets (GNPA) improved 6 basis points quarter on quarter to 1.81 per cent. Adjusted for the Supreme Court (SC) order on asset quality classification, GNPL improved by 4 basis points. In the individual lending book, overall collection efficiency (CE) was 96.3 per cent, while that of the non-moratorium book was 99.5 per cent.

With the unlocking of the Indian economy, traction in individual loans gained momentum with successive month-on-month improvements. The prevailing low interest rates, softer property prices, reduction in stamp duty in certain states and inherent strong demand for home loans bodes well for the housing finance sector, the management said. The months of September and October 2020 have seen the strongest recovery since the outbreak of the pandemic, it said.

“Q2FY21 was a strong quarter on all fronts. Disbursements have been picking up month on month and have crossed YoY levels over the past two months. With declining cost of funds and reduction of excess liquidity on the balance sheet, margins should be stable despite pressure on retail lending yields. CE data is encouraging. We believe the company has made more-than-enough provisions for any potential asset quality slippages for the next two quarters,” Motilal Oswal Securities said in result update.