Will HDFC hold up its home loan growth rates?
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That there are no nasty surprises from the December quarter numbers of Housing Development Finance Corp. Ltd (HDFC) should please investors and justify the 13% run-up in its shares over the past three weeks.
To its credit, the home loan lender’s net profit grew by 12% to Rs1,701.21 crore for the December quarter, marginally higher than analysts’ estimates. Indeed, the housing finance company has seen better quarters before with higher profit growth but the latest is not to be sneezed at especially in the wake of the currency withdrawal.
The fact that the profit comes on the back of a strong operating performance, with net interest income growing at 17%, and asset quality holding up in the aftermath of demonetisation is enough reason for investors to like the stock. HDFC’s shares, which were initially pummelled on demonetisation worries, have gained 13% so far in 2017, shrugging off the initial negative sentiment.
The home loan firm seems to have weathered the demonetisation event much like its smaller peers. The currency withdrawal could shave only one percentage point off HDFC’s individual loan book growth, which slipped to 15% for the third quarter from the average 16% in the previous two quarters. This is adjusting for the loans sold by the lender. Its non-individual loan book that is largely made of developer loans grew at a faster pace of 17% for the December quarter.
But the worry is that HDFC’s individual loan book growth has been slowing over the last three years. Its individual loan book growth was as high as 19.7% in fiscal year 2014, which dropped to 16.8% in FY15 and then to 15.6% in FY16. According to Religare Capital Markets’ research wing, the home loan lender’s individual loan book growth could drop to sub-12% for FY18.
HDFC’s individual loan book has been its strength and the growth in it outstripped that of the corporate loan portfolio until 2015-16. The push for mortgage loans, healthy rise in real estate prices and the management’s focus on individual loans boosted the portfolio over the past years. This year, the share of individual loans in incremental loan disbursals has dropped to 73% in the December quarter from 88% in the June quarter.
The lingering effects of demonetisation will perhaps reduce growth in disbursements for another quarter. But the real question is whether HDFC will trump the rising competition from banks and other housing finance firms consistently as it has in the past.