There were two concerns about Housing Development Finance Corp. Ltd (HDFC) results for the March quarter: whether the rise in the cost of funds would squeeze the spread on loans over the cost of borrowings and whether the rise in interest rates would crimp demand growth.
The results show the country’s biggest housing finance firm has been able to maintain its spread at 2.33% for the full fiscal 2010-11 (FY11). This was the same spread as in the first nine months of the fiscal, implying that spreads remained stable during the fourth quarter (Q4).
Also see | Stable Ground (PDF)
Conrad D’Souza, senior general manager at HDFC, said that spreads were protected because the firm was able to pass on the increase in the cost of funds. The management’s target for spreads is between 2.15% and 2.35%.
Loan growth, after taking into account loans sold during the year, was 24%. D’Souza said that retail loans increased by 27% year-on-year (y-o-y), while commercial loans were up 19%. The Reserve Bank of India’s data on deployment of bank credit shows that as on 25 March, personal loans for housing had increased by 15%. HDFC’s growth is well above that.
The HDFC management sees no sign of a slowdown in loan growth, although its growth target for loans is a bit lower at 20%. Nevertheless, as on 31 December, the growth in the loan book inclusive of loans sold was 27% y-o-y, while growth in individual loans inclusive of loans sold was 31%, which indicates a slowing of the growth rate.
But then Q4 of FY10 had a very high loan growth on account of the dual rate home loan scheme, so the management says there’s a base effect. Asset quality continues to be excellent.
HDFC’s profit after tax increased by a strong 23.3%, but that has been bolstered by profits on sale of its stake in Lafarge Cement, which had announced a buy-back. Net operating income growth was restricted to 17.3%. Profit before tax for Q4 has increased by Rs 288.07 crore, of which Rs 88.15 crore is on account of higher profit on the sale of investments. Put another way, growth in core profit, without taking other income and profit on the sale of investments into account, was 16.2% y-o-y.
HDFC’s return on equity for FY11 is 21.7%, compared with 20.09% in the previous fiscal. Its performance has been commendable in a difficult environment and there is no reason for the stock to underperform the Bankex of the Bombay Stock Exchange.
Graphic by Yogesh Kumar/Mint
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