Housing Development Finance Corp. Ltd’s (HDFC) profit before tax (PBT) for the June quarter, at Rs966.59 crore, was higher by Rs186.67 crore, or 24%, over the PBT during the corresponding quarter last year. What was the reason for this increase? Not interest on loans, which was almost exactly the same as during the June quarter last year. Not fees and other charges, which were at half last year’s levels. “Other interest” and surplus from deployment of funds in cash management schemes of mutual funds was also lower. Dividends, though, were a bit higher, but only by around Rs62 crore. On the expenditure side, interest on loans and deposits wasn’t very different from the year-ago figure. But the single important reason for the rise in profits was lower interest on bonds and debentures. This was Rs269 crore lower in the quarter under review, compared with the year-ago quarter.
Also See Growth Story (Graphic)
That has led to HDFC’s current high spread on loans over the cost of borrowings, which was at 2.34% during the June quarter, a whisker below that in the March quarter, but still higher than the 2.31% spread for the whole of FY10. It is well above the 2.15-2.2% spread the company aims at. The high spreads are the result of falling interest rates and should moderate in future.
HDFC’s June quarter results show a slight increase in loan growth. Including loans sold during the year, the year-on-year (y-o-y) growth in the company’s loan outstandings was 23% at end-June, compared with 22% at the end of March. Interestingly, though, loans outstanding to corporate bodies showed hardly any change during the June quarter and almost the entire rise in outstanding loans was on account of loans to individuals. “The increase in home prices has not yet had any impact on loan demand,” said Conrad D’Souza, senior general manager at HDFC. Moreover, he said the slowdown in loan growth to corporates during the quarter was on account of a large loan disbursed in the March quarter. While disbursements were up 25% y-o-y, loan approvals were up 30%, indicating strong lending growth ahead.
HDFC’s gross non-performing loans were 0.89% of its loan portfolio at the end of June, which was substantially better than the year-ago figure of 0.98%.
The HDFC stock has beaten the BSE Bankex in recent times, although the stock now trades at a high 5.5 times book value as on 30 June. Real estate prices are a concern, but then incomes too are rising.
Graphic by Naveen Kumar Saini/Mint
We welcome your comments at firstname.lastname@example.org