We met the management of HDFC to discuss the current home loan scenario and future business growth outlook.
Disbursement growth trend in Q3FY09 indicated slower business growth following uncertain macroeconomic environment.
The mortgage loan growth is expected to witness a significant slow down during the H2FY09 in the backdrop of tighter liquidity conditions which prevailed during Q3FY09, and higher real estate prices which has impacted a retail real estate buyer’s affordability.
Although the liquidity has eased out and real estate price have corrected in several pockets of the country, we opine that in the near-term disbursement growth will continue to witness moderation. We expect a 12% growth in HDFC’s Q4FY09 disbursements.
HDFC has witnessed a significant decline in its borrowing costs. Its flexible funding strategy has turned out to be quite advantageous.
HDFC increased its dependence on public deposit during tighter liquidity conditions where as it switched to bulk borrowings through the easier liquidity conditions.
It had reduced its lending and deposit rate in January and has further reduced lending rate by 50bps for existing customers which now stands at close to 10.75% and 8.75% respectively.
Whereas, the new customers are offered home loan at 9.75% for less than Rs30 lakh and 10.25% for Rs30 lakh and above.
In the light of declining cost of funds, we opine that HDFC would be able to maintain its historic levels of net spreads at above 2% levels.
We have valued the company on sum of the parts basis factoring value addition from its subsidiaries and associates in Life Insurance, General Insurance, Mutual Fund, Bank etc.
We are of the view that HDFC would be able to maintain spreads at around 2.2% levels; however the foremost concern would be the mortgage loan growth.
We opine that give the present macro economic headwinds, the retail real estate demand would be picking up relative later once the economy gains momentum.
We continue to maintain our earnings estimate and expect an EPS of Rs 74 for FY09 and Rs86 for FY10.