HDFC: Robust growth

Despite high realty prices and interest rates, HDFC's loan sanctions shot up in Q1

In spite of high real estate prices as well as rising interest rates, HDFC's loan sanctions and disbursements have gone up 30 per cent and 28 per cent, respectively, in the last quarter over the June 2005 quarter.

These growth rates are the same as those in FY06 and FY05. Even the growth in its profit after tax at 20 per cent y-o-y to Rs 296.8 crore in Q1FY07 is about the same as the FY06 profit growth of 21 per cent. Spreads too have remained at the same level of 2.14 per cent in Q1 against 2.16 per cent in Q1FY06.

HDFC had increased home loan interest rates last quarter. Although it managed to pass on the higher interest rates to customers, the company did face some pressure as interest expenditure increased 40.77 per cent y-o-y, while interest income too went up 36.35 per cent.

Its loan portfolio also went up 26 per cent in Q1, slightly higher than the 25 per cent loan portfolio growth clocked in FY06. Total assets too rose 26 per cent y-o-y. Its unrealised gains on listed investments work out to Rs 237 per share at the end of June 2006.

But analysts value the unlisted subsidiaries in the insurance, asset management and BPO businesses to be about Rs 150 per share additionally.

Despite its results being in line with analyst estimates, the stock fell 1.55 per cent on Tuesday.

Since the beginning of 2006, the HDFC stock has declined 11.6 per cent, while the Sensex has moved up 8.8 per cent, indicating that the market is worried about future growth.

The HDFC management has voiced concern over the 'vertigo' in house prices and expect them to correct gradually.

Interest rates, too, are likely to go up further, but HDFC should be able to grow its loans at over 25 per cent. It is one of the best companies in the housing finance sector, and after the recent correction it trades at an attractive 3.2 times FY07 and 2.6 times FY08 estimated adjusted book value.