HDFC: Stable quarter; loan growth at 15%

Growth and spreads in non-retail segment seen improving; retail growth expected to pick up

Analysts believe housing finance companies (HFCs) are fool-proof bets in the current environment; HDFC’s June quarter numbers confirm this belief. In the first quarter (Q1) of FY15, HDFC reported a year-on-year (y-o-y) loan growth of 15 per cent (after excluding the loans sold down during the quarter). In Q1, loans to individuals grew 17 per cent and loans to non-retail segment expanded 11 per cent.

Growth in retail loans has dropped from the 20 per cent levels in the previous quarter but analysts are not concerned as this was expected to be a muted quarter. Other HFCs have indicated a similar trend.

The Union Budget has given a boost to housing; analysts expect growth in loan disbursals to pick up for HFCs in the coming quarters. Though the retail segment accounts for 32 per cent of HDFC’s loan book, the 11 per cent growth in non-retail loans could suggest a pick-up in the segment’s growth, which has languished in single-digits for a few quarters. Along with growth, the cost of funds, too, has remained stable for HDFC; it has not spiked despite the firm resorting to term loans, in the absence to clarity on fund-raising norms under the new Companies Act.

The housing finance major’s standalone net interest margin stood at 3.8 per cent and spread on loans at 2.29 per cent. HDFC has reported spreads of 2.99 per cent on non-retail loans in Q1 against 2.95 per cent in the previous quarter and 2.82 in the year-ago quarter. Both sequentially and y-o-y, HDFC’s spreads in the non-retail segment have shown improvement against the 1.96 per cent spreads in retail. The spreads in retail have remained largely stable.

The firm has got dividends of Rs 300 crore during the quarter against Rs 217 crore in the year-ago period. Given that most of the dividends come from HDFC Bank, analysts believe if this is a recurring phenomena and more dividends are coming from insurance, then it is a positive. During the quarter, the firm had to make a one-time payment of Rs 74.4 crore as deferred tax liability. Profit after tax excluding the impact of deferred tax liability on the special reserve stood at Rs 1,419.10 crore, compared to Rs 1,173.10 crore in the year-ago period, recording a growth of 21 per cent. The one-time payout also pushed up the quarterly tax rate to 30 per cent from the stable 27 per cent seen in the previous quarters. Analysts believe the stock is a low-risk idea and, valued at 4x its FY16 core book, the stock is trading at fair value.