HDFC Q1 preview: Higher provisions, tepid credit growth could hit earnings

The HFC is also likely consider issuance of secured redeemable, non-convertible debentures, in various tranches, aggregating up to Rs 45,00 crore on a private placement basis

Housing finance company, HDFC (Housing Development Finance Corporation), is scheduled to report its June quarter earnings (Q1FY21) amid expectation of tepid loan disbursal, elevated provisioning, and contraction in net interest margin (NIM) as credit demand remained weak amid the ongoing Covid-19 pandemic.

The HFC, which is scheduled to report its April-June quarter earnings for FY21 on Thursday, July 30, is also likely consider issuance of secured redeemable, non-convertible debentures, in various tranches, aggregating up to Rs 45,00 crore on a private placement basis, reports suggest.

Thus far in the financial year 2021, HDFC has underperformed at the bourses. Till Monday, the stock gained 13.6 per cent on the BSE, as against a 29 per cent rise in the benchmark S&P BSE Sensex, ACE Equity data show.

Here’s what leading brokerages expect from HDFC's June quarter numbers.

Emkay Global Financial Services

Analysts at Emkay Global expect HDFC’s loan growth to be around 5 per cent, mainly due to continued disbursements for approved sanctions in the retail book. They peg the housing financier’s net interest income (NII) to come in at Rs 5,002.5 crore for the recently concluded quarter, up 64 per cent YoY, from Rs 3,042 crore reported in the June quarter of FY20. On a quarterly basis, the NII may grow 32 per cent from Rs 3,780 crore reported in Q4FY20. Consequently, net interest margin (NIM) is seen contracting marginally to 3.1 per cent from 3.3 per cent in Q1FY20 and 3.4 per cent in Q4FY20.

“Trend in commercial real estate will be important to observe. Management commentary on NIMs, market share, retail and wholesale portfolio will be key monitorables,” they noted in a results preview report.

Prabhudas Lilladher

This brokerage too expects NII to be tepid on the back of subdued loans, “particularly on the corporate side and due to competition flaring up on the individual home loan segment”. They see the income at Rs 2,793.8 crore. NIM, on the other hand, is seen at 2.48 per cent.

“Slower disbursals due to extended lockdown, higher yielding book stress (developer/LAP) and rub-off on individual lending due to competitive intensity from top PSU banks would imply slight NIM pressures this quarter,” the firm said.

Further, elevated provisions at Rs 1,299.5 crore, coupled with lack of sizeable investment gains, are expected to mar Q1FY21 earnings. The net profit is seen at Rs 1,263.5 crore, down 61 per cent YoY from Rs 3,203.1 crore in June, 2019 quarter. Sequentially, the profit may tank 43 per cent from Rs 2,232.5 crore reported in Q4FY20.

“We build-in marginal pressures on non-performing assets (NPA) this quarter incorporating extended lockdown impact on recoveries/business. Further, optical credit costs ratio looks lower as loan momentum dips,” they added.

ICICI Securities

The brokerage expects a slight decline in asset under management (AUM) on a quarterly basis as they see disbursements not keeping pace with the run-off in the loan book. They foresee the AUM at Rs 511,621.3 crore for the quarter under review, down from Rs 516,598 crore reported in Q4FY20 and Rs 475,933 crore in Q1FY20.

“Investment profit of Rs 1,240 crore (HDFC Life stake sale) and dividend income of Rs 300 crore will be utilised to make elevated provisions and improve coverage on potentially stressed assets,” the analysts observed. The provisions are seen at Rs 1,542.3 crore in the recently concluded quarter, up 21 per cent QoQ, from Rs 1,274 crore set aside in Q4FY20. On a yearly basis, they may grow 73 per cent from Rs 890 crore.

Overall, the brokerage is seen rising only 2 per cent YoY and 29 per cent QoQ to Rs 3,272.9 crore for the quarter under review. The pre-tax profit, meanwhile, is seen at Rs 4,091.2 crore, translating into a sequential growth of 37 per cent from Rs 2,991.9 crore reported in Q4FY20. On a yearly basis, the growth is flat from Rs 3,985.1 crore logged in Q1FY20.

Edelweiss Securities

According to the brokerage, the housing financier’s growth momentum will be below trend with softer individual and corporate growth. Moreover, NIM is unlikely to increase despite easing of borrowing costs, they opine.

The pre-provision profit and net profit for the quarter are seen at Rs 3,037.8 crore and Rs 2,647.3 crore, respectively for the June quarter of FY21.

Nirmal Bang Institutional Equities

Analysts at the brokerage see net profit at Rs 2,842.7 crore, clocking a sequential growth of 27.3 per cent. The NII, meanwhile, is pegged at Rs 3,457.7 crore.

It sees loans disbursed during the quarter to come in at Rs 433,343.9 crore, while deposits are seen at Rs 411,558.2 crore.

“We expect NBFCs to report a weak quarter. Although the stress had already started surfacing before the Covid-19 outbreak, we think that the NPA-formation in this segment would accelerate. In this backdrop, we expect HDFC to report higher provisioning, although it would still be relatively better than peer firms,” the brokerage said.