Strong traction in individual loan book, stable asset quality and spreads enabled HDFC meet Street expectations for the September 2012 quarter. The HDFC stock price thus remained flat at Rs 750.50 on Monday. While most analysts remain positive on HDFC sustaining its operating performance going forward, many believe, the stock trading at 4.3 times FY13 estimated book value appears to be fairly priced, thus limiting further upsides in the near-term.
Vaibhav Agrawal, VP Research-Banking , Angel Broking, says, "HDFC is behaving more and more like a defensive scrip, which is unlikely to fall significantly from current levels. However, on account of high valuations and significant premium to the Sensex, we continue to remain ‘Neutral’ on the stock."
Strong loan, dividend growth fuel topline
HDFC's net interest income grew at a healthy 18% to Rs 1,634 crore due to strong 22% loan growth excluding loans sold (in-line with expectations). This figure inches up to 27% if the loans sold are included, which is a tad higher than the historical range of 20-25%. The individual book formed 78% of the incremental loan book in the quarter gone by. Significant growth in the non-metro tier-II to tier-IV cities, customer-friendly product portfolio and easing competition from banks were key drivers of individual loan book. HDFC's corporate loan growth - which has been slowing in the past 2-3 quarters, inched up to 19% in the September quarter versus a dismal 14% in the previous quarter. Management remains confident of similar growth in its corporate book going forward. On the whole, HDFC expects to grow its loan book by 18-20% this fiscal. Further, a two-fold increase in its dividend income also boosted the total income in the quarter gone by.
Spreads, asset quality intact
HDFC's asset quality continued to be healthy with gross non-performing assets improving to 0.77% of the loan portfolio. The management continues to remain positive and has not witnessed any significant pressure on this front. For the September quarter, HDFC made higher provisioning of Rs 40 crore - unchanged sequentially. Its spreads and net interest margins (NIMs) showed divergent trend this quarter. Sequentially, the spreads remained unchanged, driven by growing contribution of individual loan book. Conrad D'Souza, member of executive management, HDFC says, "We expect to maintain our spreads in the range of 2.15 to 2.35% going forward". Agarwal says, "HDFC has been incrementally growing its individual loan book much faster than its corporate book over the last six months in order to improve its margins and non-interest income such as processing fees.” Profit on sale of investments (Rs 94 crore), came in higher than Street expectations of Rs 50 crore, adding to the bottomline growth.
