Mumbai: India’s oldest mortgage lender Housing Development Finance Corp. Ltd (HDFC) reported a 22% rise in net profit for the quarter ended September 2010 after demand for housing loans grew and the company cut costs.
While demand for loans is expected to be robust for the rest of the fiscal despite rising prices, analysts said the company will not be able to sustain its spread—the difference between cost of lending and borrowing—at 2.34 percentage points.
HDFC’s net profit at Rs 807.5 crore for the September quarter beat street estimates by a wide margin. A Bloomberg poll of analysts estimated the mean net profit at Rs 769 crore.
“The results are better than expected,” said an analyst with a local brokerage who didn’t want to be identified. “Loan growth has been strong.”
The company’s basic earning per share grew to Rs 5.53 for the quarter from Rs 4.66 a year ago.
An economy which grew at 8.8% in the first quarter of this fiscal, the third fastest among major economies, and so-called teaser loans from many lenders have fuelled demand for housing loans in India.
At the end of September, HDFC’s loan book had grown to Rs 1.06 trillion, up 19% from a year ago.
This didn’t include the Rs 4,858 crore worth of loans the mortgage lender had sold in the previous year. The growth in the loan book inclusive of loans sold (to HDFC Bank Ltd) is 24%, an emailed statement from HDFC said.
Last week, smaller rival LIC Housing Finance Ltd reported a 37% increase in net profit for the quarter ended September on a loan book growth of 36%.
HDFC also reported a 29% growth in sanctions and 27% growth in disbursements, which shows that demand for housing loans remains strong.
Loans to individuals, which accounts for 65% of its loan book, was also robust with a 49% gain in approvals and 42% increase in disbursements.
The year-on-year loan growth for the Indian banking industry till 24 September has been 19%.
With the Reserve Bank of India and the government forecasting a 8.5% economic growth this year, demand for housing loans is expected to be robust.
What has added a sheen to HDFC’s result has been its ability to improve the spread to 2.34 percentage points compared with 2.21 percentage points the previous year.
Net interest income—the difference in the revenue earned from loans and the interest paid for deposits—grew 26% to Rs 1,189 crore.
“The fact they have managed to maintain the spread in an environment where cost of funds is going up is another positive,” said an analyst with a foreign brokerage who didn’t wish to be identified.
Still, with interest rates going up with the RBI battling inflation of around 8.5%, margins might get squeezed in the second half of the year, analysts said.
The company has been keen on cutting costs. Total expenditure fell 5.2% to Rs 1,836 crore in the September 2010 quarter.
As a percentage of its loan book, HDFC’s gross non-performing assets shrunk to 0.86% at September end compared to 0.95% in the year ago.
The company’s stock fell 0.34% to Rs 724.4 on the Bombay Stock Exchange on Monday on profit booking even as the exchange’s bellwether equity index Sensex rose marginally.