HDFC: Consistent performer

One-time gain boosts profit, while margins remain steady

Housing finance major HDFC reported a 33 per cent rise in net profit to Rs 890 crore in the quarter ended December 2010, boosted by profit from sale of investments (Rs 167 crore). The net interest income growth was flat quarter-on-quarter (q-o-q) with spreads marginally (4 bps) lower at 2.3 per cent. It clocked net interest margins of 4.3 per cent.

The portfolio quality improved with 90 days overdue non-performing loans at 0.85 per cent (0.94 per cent in the third quarter of FY10). The higher provisions for teaser and non-individual loans (one-time expense of about Rs 270 crore) were met through additional reserves. This reduced the book value by 1.5 per cent without impacting the profit. The company retains excess provisions of about Rs 300 crore.

Approvals rose 29 per cent but disbursement growth, at 21 per cent y-o-y, was lower than the 25 per cent average seen in the last few quarters. A Macquarie report suggests this may be due to lower disbursements to developers even as total loan growth is expected to come off as the strong year-end growth in FY10 is added to the base.

Demand from speculative buyers could taper off given the upward pressure on interest rates and withdrawal of the teaser loan scheme.

However, this should not impact individual demand and loan growth should remain 20-25 per cent, says Conrad D’Souza, senior general manager, HDFC.

Interest rates have increased 125 bps, he notes, and even at around 11 per cent (should there be a rate action by RBI) are not a significant deterrent for genuine home buyers. He also expects some correction in home prices as the fund crunch faced by real estate companies could push them to sell inventory.

The stock ended 3.15 per cent higher on Monday at Rs 661.75.

Analysts believe there are limited triggers for any near-term upside from these levels (5x FY12 book value per share estimates).