HDFC gains 9% in three days on steady performance in June quarter

The funding advantage and adequate capital will aid growth and earnings while healthy provision buffer and improvement in collection will aid asset quality, analysts said

Shares of Housing Development Finance Corporation (HDFC) were up 4 per cent at Rs 2,649.75 on the BSE in intra-day trade on Wednesday, gaining 9 per cent in the past three trading days after the housing finance company (HFC) reported a steady performance for the quarter ended June 2021 (Q1FY22). The stock was trading higher for the fourth straight day.

India’s biggest mortgage lender HDFC on Monday reported a 1.6 per cent year-on-year (YoY) decrease in standalone net profit at Rs 3,001 crore for the April-June quarter of FY22 (Q1FY22) on the back of lower other income and higher tax and employee expenses. In the year-ago period, the profit stood at Rs 3,051 crore. Sequentially, the profit declined 5.6 per cent from Rs 3,180 crore.

On the revenue front, the lender’s net interest income (NII) came in at Rs 4,147 crore for the quarter under review, up 22.2 per cent compared with the previous year’s NII of Rs 3,392 crore. On a quarterly basis, the income increased marginally by 2 per cent from Rs 4,064.8 crore reported in Q4FY21. HDFC said its gross non-performing loans as at June 30, 2021, stood at Rs 11,120 crore, equivalent to 2.24 per cent of the loan portfolio. The GNPA ratio in Q4FY21 stood at 1.98 per cent.

HDFC is the largest non-banking finance company (NBFC) engaged in housing finance business. It has demonstrated consistent performance in terms of both business growth as well as asset quality. Individual loans contribute around 78 per cent of assets under management (AUM). The stakes in subsidiaries in insurance and asset management business aid value.

Despite Covid-related lockdowns during the quarter, individual loans saw a healthy growth of 14.5 per cent YoY to Rs 3.76 trillion. Corporate loans fell 9 per cent YoY to Rs 1.18 trillion. Management said that demand for home loans remains strong and disbursements have picked up.

Analysts at ICICI Securities anticipate a pick up in business growth led by market leadership. The funding advantage and adequate capital will aid growth and earnings, while healthy provision buffer and improvement in the collection will aid asset quality, the brokerage firm said in a result update.

“We believe that the company is able to gain the market share, especially from other HFCs and even smaller banks, due to its superior liability franchise and lower cost of fund. We remain bullish on home loan demand due to low-interest rates and various perks offered by the government,” analysts at Emkay Global Financial Services said.

The brokerage's market share analysis suggests a consistent market share loss by HFCs to banks, which it believes will intensify further. Though HDFC still managed to hold its position due to a superior reach and the best-in-class liability franchise, the competition pressure in the housing segment is imminent. The sharp shift in Stage 2 assets to Stage 3 assets would be a concern, however, the provision buffer provides comfort, the brokerage firm added.