Mumbai: India’s oldest mortgage lender, Housing Development Finance Corp. Ltd (HDFC), on Monday reported fiscal fourth-quarter earnings that signalled the worst may be finally over for the struggling real estate market.
HDFC’s profit before exceptional items and sale of investments rose 20.23% to Rs732.89 crore in the three months ended 31 March, from Rs609.57 crore a year earlier, the home lender said. For the full year, net profit rose by 23.21% to Rs2,258.83 crore, from Rs1,834.55 crore.
HDFC, a bellwether for real estate demand in the country, bounced back from a 15.7% earnings drop in the December quarter when the property market was stricken by slumping demand in a slowing economy and indebted developers were starved for cash. Demand seems to be reviving with a drop in property prices and the cost of borrowing.
“Every month we are seeing an increase in enquiries and demand for loans. The drop in demand for home loans is a myth created by the media,” said Keki Mistry, HDFC vice-chairman and managing director.
The lender’s loan disbursements for the quarter ended March increased by 18% and for the full year rose 21%.
Housing prices have dropped between 20% and 30% in pockets of major cities and mortgage lenders have been paring interest rates in tandem with the Reserve Bank of India’s policy rate cuts to boost demand. The central bank’s policy rate has declined to 3.25% now from 9% in October.
HDFC shares surged Rs226.10, or 13.06%, to close at Rs1,957.60 on the Bombay Stock Exchange compared with a gain of 6.41% in the Sensex, the benchmark equity index, to 12,134.75 points.
Taking into account a one-time gain in the year-ago quarter, the mortgage lender’s net profit dipped 4.52% in the quarter ended 31 March and 6.3% in the full year. Profit in the year-earlier quarter included a gain of Rs202 crore from the sale of a 26% stake in HDFC General Insurance Co. to a unit of reinsurer Munich Re.
“The profit numbers exceeded market expectations. Its operating expenses have come down and its cost of funds is likely to be lower in the coming quarters,” said a banking analyst at a Mumbai-based brokerage who did not want to be identified because he is not the firm’s official spokesperson.
HDFC beat a forecast net profit of Rs640 crore in a Reuters poll of 10 analysts.
The lender’s spread between what it earned on loans and paid for funds for the year improved marginally to 2.21% percentage points from 2.19% percentage points in the year prior.
“With increased competition from public sector banks, market share gains for HDFC look challenging. We expect HDFC to grow in line with the market in individual home loan segment at about 16% annually,” said a recent research report by JM Financial Institutional Securities Pvt. Ltd.
India’s commercial banks posted 7.5% growth in home loans in the first 11 months of fiscal 2009, according to Reserve Bank of India data. The banking sector’s loan disbursements to the real estate sector during the period, however, rose by 61.4%, from 26.7% in the corresponding period of the previous year.
Gross non-performing loans at the institution as on 31 March stood at Rs701.55 crore. This is equivalent to 0.81% of the loan portfolio, down from 0.84% in the previous year. These include loans on which borrowers had not paid principal or interest for a quarter.
Bloomberg contributed to this story.