HDFC: Chugging along

The corporation’s growing retail portfolio has compensated for slower uptake in corporate portfolio

HDFC, the largest private mortgage lender in the country, just managed to meet expectations with its June quarter results. The stock has been outperforming the Bankex and the broader indices since last month and has been trading at relatively premium valuations. But, results put a brake on the rally.

Loan growth fell 17 per cent during the first quarter of FY11 (without adjusting for loan selldowns to HDFC Bank), compared to initial estimates of 18 per cent. The stock came under some selling pressure and lost one per cent a day after the results were announced. On the brighter side, the undertone of the business remained strong. HDFC, with its attractive special home loan schemes, saw disbursements to individual borrowers grow 62 per cent year-on-year. Individual loan sanctions also rose 56 per cent during the period. But, overall disbursements grew only 25 per cent, as HDFC managed to slow down the corporate loan book in favour of retail.

The continuation of the special home loan scheme, under which customers are charged a fixed rate of 8.25 per cent initially, may ensure disbursement growth of 22-25 per cent in 2010-11. The mortgage lender also improved the spreads on loans by 11 basis points (bps) in the June quarter to 2.34 per cent compared to the year-ago period. Net interest margins improved 30 bps to 3.3 per cent. However, they declined 110 bps sequentially, as yields on advances fell 85 bps and cost of funds inched up 30 bps.

The asset quality remained strong, with net non-performing loans at 0.58 per cent. HDFC reported a 23 per cent rise in net profit during the quarter. But, for a one-time gain during the year-ago quarter, profit growth would have been 32 per cent in the period under review.

While the company keeps chugging along with its steady performance, analysts consider value unlocking in the insurance business to be the real trigger.