HDFC: Value to be unlocked?

HDFC: Value to be unlocked?
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First Published: Fri, May 04 2007. 12 26 AM IST
Updated: Fri, May 04 2007. 12 26 AM IST
There is no hint of a slowdown in the housing sector in Housing Development Finance Corp. Ltd’s (HDFC) results for the March quarter.
The housing finance company posted a 30% growth in approvals and a 27% growth in disbursements during the quarter, on a year-on-year basis. In the December quarter, approvals were up 28%, while disbursements moved up at the same rate of 27%. The year-on-year increase in HDFC’s outstanding loan portfolio was 25% in the March quarter, a tad higher than the 24% growth notched up in the previous quarter.
The company’s net profits rose 28.9%, a higher rate than the December quarter’s growth rate of 24.9%, the extra boost coming in because of higher dividend receipts from companies, as they tried to beat the increase in tax on dividend distribution proposed in the Budget by paying dividends before March end. On a consolidated basis, diluted earnings per share rose 24% in FY07.
Interest charges as a percentage of interest earned on loans went down during the March quarter, compared with FY07 as a whole, the result of the company increasing the rate of interest on housing loans. That more than offset the rise in cost of funds. Clearly, HDFC has not seen any impact either on margins or on revenues in spite of higher interest rates.
Non-performing loans, computed on the basis of loans being classified as bad as soon as they become 90 days overdue, were 0.92% of the loan advances as at end-March, compared with 1.26% at the end of December, which is a significant improvement. The HDFC management says that because they did not lower their standards in order to chase loan growth, their bad loan levels will remain low.
The company’s capital adequacy ratio, however, has slipped to 12.9% from 15% a year ago, while the minimum required is 12%. That’s partly because of the loan growth and partly because the Reserve Bank of India has increased the amount of capital that the company has to keep apart for real-estate loans. The management says that there’s no need to raise capital for the core housing finance business and that the recent RBI decision to reduce the risk weight on housing loans below Rs20 lakh will also help reduce its need for capital.
Tier 1 capital adequacy is 7.6% against the minimum requirement of 6%.
At Rs1,666, HDFC stock quotes at 3.37 times its book value adjusted for unrealized gain on investments and at a consolidated price-earnings ratio of 25.8 on FY07 earnings, but the price has to be seen in the context of the valuation of its subsidiaries, in particular its life insurance business, which has lots of potential. The stock has already gone up 16% in the past month, but it is very likely that HDFC will soon list its BPO business, Intelenet Global Services, which will lead to value being unlocked.
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First Published: Fri, May 04 2007. 12 26 AM IST
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