HDFC: Back in business

The home loan major has bounced back smartly in a very difficult quarter with a strong growth in sanctions

HDFC’s numbers for the March 2009 quarter are a pleasant surprise — the net interest income is up 11 per cent q-o-q at Rs 871 crore, even though it may have been flat y-o-y.

The benefit of a sequential fall in the incremental cost of funds---which should have been somewhere in the region of 200-250 basis points---has helped the home loan major bringing down the weighted average cost of funds by about 50-75 basis points. In particular sanctions are up about 17 per cent year-on-year on a high base last year, indicating that the worst may be over.

In the December 2008 quarter the rather sedate sanction numbers had been cause for concern. So, while the year-on-year increase in the profits before gains from the sale of investments and exceptional items of Rs 1,027 crore, at 16 per cent, may not seem very exciting, the quality of the numbers is good.

That’s also because non-performing loans (npls) at the end of March 2009, have fallen to 0.56 per cent from 0.68 per cent in March last year. And the spread for 2008-09 at 2.2 per cent has been only slightly lower than the 2.32 per cent seen in 2007-08. The stock has seen a sharp run up but given that growth concerns have been addressed, should trade at a fairly large premium to the market, as it has in the past.