Mumbai: India’s oldest mortgage lender Housing Development Finance Corp. Ltd (HDFC) on Monday reported a 26% rise in its net profit in the fourth quarter, beating Street expectations and signalling a strong revival of demand for home loans as growth accelerates in the world’s second fastest growing major economy.
The net profit of the housing finance company rose to Rs926.38 crore in the March quarter against Rs733.37 crore in the corresponding quarter last year, driven by loan growth, low-cost structure and rising margin, or the spread between HDFC’s cost of money and return on loans.
The average of ten brokerages’ expectation of HDFC’s net profit estimate was Rs805.2 crore.
For the full year, the lender’s net profit rose 24% to Rs2,826.49 crore.
The HDFC board approved a proposal to split the Rs10 face value share into five carrying a face value of Rs2 each. The proposal is subject to the approval of shareholders.
The board also recommended a dividend of Rs36 per equity share.
The HDFC stock lost 0.58% to close at Rs2,805.6 even as the benchmark index of the Bombay Stock Exchange, the Sensex, lost 0.98%.
“We have seen 191% growth in loan approvals and 148% increase in loan disbursements in this quarter, but one has to keep in mind that in the corresponding quarter last year the home loan demand was very weak,” said Keki Mistry, vice-chairman and chief executive of HDFC.
“The loan demand is expected to be robust in the coming quarters as the penetration levels are low and the demand for affordable housing is picking up,” he added.
Loan approvals during the year were Rs60,611 crore against Rs49,166 crore, a growth of 23%, and disbursements were Rs50,413 crore against Rs39,650 crore, representing 27% growth. During the year, individual loan approvals and disbursements grew 53% and 31%, respectively.
The spread on loans over the cost of borrowings for the year rose to 2.31%, from 2.21% in the previous year.
“HDFC is facing competition from leading public sector banks in the housing space. State Bank of India’s (SBI) decision to continue with the teaser loan rates until June may affect most banks’ and housing finance companies’ market share,” said a banking analyst with a Mumbai-based brokerage, who did not want to be identified as he is not authorized to speak to the media.
Teaser loans, or dual-rate loans, offer customers mortgages at a lower rate for the first year or two, after which the rate can go up, depending on the trajectory of interest rates in the financial system.
HDFC in April had reintroduced the dual-rate scheme for a month. ICICI Bank Ltd too stopped such a scheme in April-end while Axis Bank Ltd had withdrawn its dual-rate home loans a few months back. SBI will, however, continue with its dual loan scheme till June.
According to Mistry, the rise in profit is driven by an improved cost structure, rising spreads and overall loan growth.
Total expenditure of the housing finance firm for the March quarter fell by 23.16% to Rs1,633.44 crore. Consequently, the cost-to-income ratio for the full year dipped to 7.9% from 8.8% in the previous year.
Indeed its income from operations has also dipped but by a smaller margin. Its total income has dropped by 8.06% to Rs2,899.32 crore for the quarter.
In a recent report, Keefe, Bruyette and Woods Inc., a financial services specialist, said major risks to HDFC relate to the growth environment and competition in the mortgage market, “as any disappointment could cause the market to question the company’s earnings prospects”. It, however, added that with a small fixed-income portfolio, HDFC is “the least exposed to bond losses”.
HDFC’s capital adequacy ratio stood at 14.6% in March, indicating it can grow its asset base comfortably, and the non-performing assets as a percentage of total assets stood at 0.53%, down from 0.56% in the previous year, demonstrating the quality of its assets.