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HDFC Q3 net hit by weak housing market

HDFC Q3 net hit by weak housing market
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First Published: Thu, Jan 22 2009. 01 15 AM IST
Updated: Thu, Jan 22 2009. 10 06 AM IST
Mumbai: A slowing housing market has pinched mortgage lender Housing Development Finance Corp. Ltd (HDFC), though the finance firm expects loan demand to pick up in the coming quarters because of lower interest rates and cheaper real estate. “The number of customer enquiries has been on the rise in the latter part of December and early January,” said HDFC vice-chairman and managing director Keki Mistry.
The mortgage lender on Wednesday reported a drop in net profit and sluggish growth in lending during the third quarter of this fiscal year. Quarterly net profit was 15.7% lower than a year ago and new loans grew at 17.69%. The drop in profit was accentuated by the fact that third quarter (Q3) earnings in fiscal 2008 were healthier than usual because of a one-time profit from the sale of the entire investment in Intelenet Global Services Pvt. Ltd, an outsourcing firm owned by HDFC, and a small stake sale in subsidiary HDFC Standard Life Insurance Co. Ltd. Shorn of these one-time revenues, there was an annual rise in Q3 earnings of a modest 14.85%, the slowest since 1998.
Investors were unimpressed. The HDFC share ended at Rs1,372.25 on Wednesday, down 7.49%, even as the Bombay Stock Exchange’s benchmark Sensex dropped 3.53%.
“This is slowest profit growth registered so far (by HDFC). The slowdown in the housing sector is clearly evident from the numbers. The disbursements made by the housing finance company have also seen a drop,” said a banking analyst with a Mumbai-based brokerage firm, who did not want to be quoted as he is not an official spokesperson for his employer.
HDFC is a bellwether for the broader real estate market in India, which is currently shaken by dropping prices, low demand as well as highly indebted and cash-starved developers. The government has made a housing revival central to its strategy to keep growth on track.
A report by domestic brokerage Prabhudas Lilladher Pvt. Ltd said, “High real estate prices and home loan rates have acted as a strong deterrent for the housing finance companies in recent times, as demand has moderated... The festive season discounts were also unable to spurt up demand. The economic slowdown has further worsened the scenario; recent announcements by public sector banks to offer home loans at low rates will put housing finance companies under further pressure,’’ added the report.
HDFC is a housing finance company that competes with banks in mortgages.
“Liquidity was an issue in October. During that period, we held back on loans given to non-individuals,” Mistry told Mint. That was the month when liquidity dried up in the country’s financial system before the Reserve Bank of India started easing monetary policies.
“Loan demand from individuals also saw a slowdown as they were expecting property prices to soften. We expect loan demand to pick up in the coming quarters, but this will be with a lag as interest rates are recently beginning to come off.”
HDFC on 17 January had reduced interest rates on new home loans of up to Rs30 lakh to 9.75%—the lowest in three years. This is part of a one-time offer that will be withdrawn at the end of February.
The mortgage lender’s profit was also hit by a higher effective tax rate in Q3, said Mistry. Despite the tough environment, the housing finance company maintained its net interest margin at 2.19%.
“Historically, we have aimed at maintaining a margin of 2.1-2.2%. The cost of funds, which had inched up in the range of 10.50-11% in October has eased off to below 9% levels now. The non-performing assets of the housing finance company have dipped to 1.01% for the quarter ended 31 December, compared with 1.12% in the same quarter in 2007. Correction in the property prices and decline in the bulk deposit rates seem to be the only relief for the housing finance companies, going forward,’’ said the Prabhudas Lilladher report.
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First Published: Thu, Jan 22 2009. 01 15 AM IST