HDFC: Predictable as ever

December quarter numbers in line with estimates; revenue up 16.3%, driven by retail loans; net profit up 12%, restricted by lower investment income

Housing Development Finance Corporation (HDFC) has posted numbers in line with analysts' estimates. Standalone profit after tax for the quarter ended December 2013 rose 12 per cent from a year earlier to Rs 1,278 crore. Bloomberg’s consensus net profit expectation was Rs 1,273 crore.

Higher revenue from operations and growth in the retail loan book aided the earnings. However, profit growth was hit as gains on sale of investments were lower than a year before.

Income from operations of India's largest housing finance company grew 16.3 per cent over a year to Rs 5,985 crore in October-December. Profit on sale of investments during the quarter was Rs 34.6 crore, compared to Rs 96.3 crore in the corresponding period of the previous year.  

“Spread, which represents the difference between the lending rate and borrowing cost, for the nine-month period stood at 2.25 per cent. Net interest margin was four per cent compared to 4.06 per cent in the second quarter. But that is a natural phenomenon because as the balance sheet keeps increasing in the course of the year, the growth comes from borrowed money and there is an interest cost attached to it,” said Keki Mistry, vice-chairman and chief executive officer, in his post-earnings comments.

The loan book was Rs 192,266 crore at the end of December, compared to Rs 160,941 crore a year earlier. HDFC sold loans worth Rs 3,263 crore in the 12 months. Growth in the individual loan book (net of loans sold) was 24 per cent compared to a 19 per cent rise in total advances, indicating healthy revenue visibility.

Gross non-performing loans at the end of the quarter were Rs 1,478 crore. The asset quality was stable with the non-performing loans reduced to 0.77 per cent of the portfolio compared to 0.79 per cent in the previous quarter.

By regulatory norms, HDFC is required to carry a total provisioning of Rs 1,357 crore. The balance in the provisions for contingencies was Rs 1,823 crore (of which Rs 532 crore was on account of non-performing loans) at the end of December.

It closed the quarter with a capital adequacy ratio of 19.1 per cent, as against the minimum requirement of 12 per cent, indicating sufficient capital to sustain growth. The unrealised gains on listed investments were estimated to be Rs 33,379 crore.

"The profit after tax was in line with our estimates. The lender has said it is betting on increased loan demand in smaller cities to boost growth in a slowing economy, a positive sign.

Asset quality has remained healthy over the past several quarters and the trend is likely to continue. During the quarter, income from sale of investment was lower than estimated. We maintain a ‘buy’ rating," said Rikesh Parikh, vice-president, institution corporate broking, at Motilal Oswal Securities, in a note to clients.

The stock closed at Rs 842.25, up 0.6 per cent on Wednesday, and trades at 4.2 times the FY15 estimated book value. According to Bloomberg, of the 11 analysts' recommendation since the start of 2014, four have a 'buy/accumulate' rating, two a 'sell/underperform' one and five a 'neutral/hold' rating on the stock.