HDFC rides the housing slump

HDFC rides the housing slump
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First Published: Sat, Oct 18 2008. 12 30 AM IST

Updated: Sat, Oct 18 2008. 12 30 AM IST
India’s oldest mortgage lender Housing Development Finance Corp. Ltd, or HDFC, has reported a decline in the growth rate of disbursements. In the June quarter, the housing financier reported a 27.6% growth in payouts.
Last quarter, loans grew at a lower rate of 22.6%. The reported net interest income grew by 29% in the three months to September, at the same level as the June quarter.
But adjusted for profit on sale of investments, net income grew by 26.6%, lower than the 33.2% reported in the June quarter.
Growth rates may have dipped, but the markets are not worried. In fact, considering the rate at which the housing market has slowed, it’s commendable that demand for HDFC’s loans continues to grow at a steady pace.
As a result, even though the markets fell by about 6% on Friday, HDFC shares fell only 1%. In fact, since the company last reported results in mid-July, its shares have outperformed the Nifty index on the National Stock Exchange by 24%.
Even after adjusting the value of its subsidiaries and investments, HDFC trades at a rich valuation of about 3.2 times book value.
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Given its relatively high foreign institutional holding of over 60%, one would have expected its shares to take a beating this year, especially since foreign institutional investors, or FIIs, have been offloading most Indian stocks. It instead turns out that HDFC is one of the rare stocks where FII holding has increased compared with the June quarter.
Evidently, the markets like the steady growth in earnings the company reports quarter after quarter.
Despite the slowdown in disbursements last quarter, operating profit grew by an impressive 30%, a rate of growth which the markets have come to expect.
Of course, growth rates could fall since high interest rates are expected to take a toll on demand for housing finance.
But it’s also important to note that the average size of HDFC’s loan disbursements is rather low at Rs15 lakh, indicating that its exposure to the high-end segment is limited.
Demand in the low mid-size market is not expected to drop as much as the high end of the market, and in that respect HDFC seems relatively well placed.
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First Published: Sat, Oct 18 2008. 12 30 AM IST