Mumbai: Housing Development Finance Corp. Ltd (HDFC), India’s largest mortgage finance company, said on Friday that stand-alone net profit for the June quarter rose 17% from a year earlier, falling short of estimates, partly because the company did not sell any investments unlike last year.
Profit rose to Rs.1,173 crore from Rs.1,002 crore in the corresponding period last year. Bloomberg’s estimate was pegged at Rs.1,208 crore. In the same period last year, HDFC earned Rs.20 crore from profit on the sale of investments.
Income from operations, which includes its main home loan business, increased to Rs.5,557 crore from Rs.4,915 crore. The loan book stood at Rs.1.76 trillion, up from Rs.1.48 trillion last year.
On a consolidated basis, net profit rose 34% to Rs.1,707 crore, or Rs.10.90 per share, from Rs.1,276 crore, or Rs.8.50 per share last year, helped by an increase in premium income from the insurance business to Rs.2,291 crore from Rs.2,007 crore last year.
Profit on the sale of investments dropped to Rs.7 crore from Rs.22 crore last year on a consolidated basis.
HDFC ended at Rs.803.50 on BSE down 2.35%, while the benchmark Sensex rose 0.11% to close at 20,149.85 points.
Net interest margin (NIM), or the difference between interest earned and that expended, dropped 10 basis points to 3.9% from 4%. A basis point is 0.01 percentage point.
Conrad D’Souza, member of the executive management at HDFC, said the drop in NIM was because of an increase in the company’s leverage. “The company usually borrows from the market and since we have not raised funds from the equity market, the NIM has come down,” he said.
Santosh Singh, analyst at Espirito Santo Securities, said the company’s share of corporate loans in its total loan book decreased from last year, impacting profitability.
“But that is to be expected in this business environment. Real estate being a risky sector, lending by HDFC to this sector is likely to be slow versus the less risky individual loans,” he said, adding that such loans have fallen to 32% of the total loan book in June 2013 from 40% of the loans in June 2012.
Besides mortgage loans to individuals, HDFC also lends to real estate developers, which it classifies as corporate loans.
D’Souza, however, said he expects the corporate book to bounce back in the latter half of the year. “We expect the business to remain steady and the share of corporate loans is likely to increase,” he said.
On a consolidated basis, revenues from HDFC’s life insurance, general insurance and asset management companies businesses increased, contributing to net profit.
Life insurance revenue increased 13% to Rs.2,222 crore from Rs.1,965 crore. General insurance revenue increased 50% to Rs.446 crore from Rs.297 crore last year, while asset management revenue increased 23% to Rs.237 crore from Rs.192 crore last year.
Vaibhav Agrawal, vice-president (research) at Angel Broking Ltd, said healthy loan book growth and stable spreads were the highlights of HDFC’s results.
“NII (net interest income) for the company grew at 17% year-on-year (marginally lower than healthy advance growth of 19% year-on-year). Given the challenging macro developments, we believe within the banking and financial services space, defensive names like HDFC may not underperform the rest of the sector in spite of its rich valuations,” Agrawal said.
Gross non-performing assets dropped marginally to 0.77% of total loans on 30 June from 0.79% a year ago.