HDFC: Strong retail demand drives income

Mortgage lender expects loan demand to remain robust for the next five years

The dominant theme this earnings season seems to be “positive surprises”. HDFC, known for steady quarterly performance, has also managed to beat market estimates. The mortgage company reported a 25 per cent year-on-year (YoY) growth in net interest income in the third quarter, while its standalone profit after tax grew 16 per cent. The net profit figure, however, was in line with the market’s estimates, as trading income and dividend income were lower. Its net interest margin was also stable. Even as 2012 has been a very challenging year for the economy, HDFC has managed to grow its individual loan book at 31 per cent (after adding back the loans sold in the preceding 12 months), and its assets under management mix moved in favour of individual loans. HDFC’s total assets stood at Rs 1,83,770 crore at the end of December 2012, reflecting a YoY growth of 19 per cent.

HDFC’s chief executive officer Keki Mistry conveyed that the mortgage company had not seen any slowdown in demand for loans, which is visible from the growth in the individual loan book. According to Mistry, “The demand for housing loans has accelerated in the last 12 months and the sluggishness in the economy has not impacted individuals. Asset quality, too, has been stable and we have seen NPLs decline over the last 32 quarters.” Even as public sector banks battle the menace of non-performing loans, HDFC’s gross non-performing assets stood at 0.75 per cent in the December quarter, compared to 0.77 per cent in the September quarter and 0.82 per cent a year ago. Rikesh Parikh of Motilal Oswal Securities says: “Overall assets quality remained intact and HDFC continued to maintain a higher provision level compared to what was required.” HDFC continues to make higher provisions than mandated.

The mortgage company believes the need for home loans will increase in times to come. HDFC is expected to report cumulative growth of at least 20 per cent a year for the next five years. This is evident from the demand emanating from the top real estate markets in the country. The company is seeing strong growth even in Mumbai, which had slipped to number three position over the last few years, when Chennai displaced it. At the end of December, Mumbai has reclaimed its position as the second biggest market, in terms of loan demand. Delhi NCR remains the biggest in the market for HDFC in loan demand, while Mumbai, Chennai, Bangalore, Pune and Hyderabad follow.