While the days of 20-25 per cent net profit growth are quite behind the company, the country's leading home financier HDFC is still among the most bought stocks of India, given its ability to deliver stable growth even during challenging times. The March quarter (Q4) standalone performance seems to have met this yardstick. Net interest income at Rs 3,123 crore grew 13 per cent year over year, while net interest margin (NIM) continued at 4.1 per cent. Net profit, however, fell 22 per cent year over year to Rs 2,044 crore as March quarter of FY16 included Rs 1,520 crore of profit from stake sale in its life insurance business. Adjusted for this, Q4's net profit grew 14 per cent.
However, seen against the December quarter run-rate where NII grew 17 per cent year on year and net profit rose 12 per cent, Q4's performance suggests interest-rate transmission to borrowers has led to moderation in growth. "Cost of funds moderated in December quarter and hence we passed on this benefit to our customers in March quarter, which is why NII growth seems a shade low in Q4. But, I believe interest rates have bottomed out, unless there is another round of rate cut," says Keki Mistry, vice-chairman and chief executive, HDFC.
Nonetheless, these numbers are largely in line with Street expectations. Non-performing assets (NPAs) remained in the safe zone, at 0.79 per cent of loans. Taking into account 56 per cent rise in provisions to Rs 148 crore, NPAs look nil.
While all these are positives, the stock traded flat on Thursday at Rs 1,564. Explaining the lack of excitement in the stock, an analyst says, "HDFC has been getting the premium largely for its ability to expand its huge (loan) book at 20-25 per cent. But, if loan growth is going to slow, which is fine in the current operating environment, then investors could reconsider their exposure to the stock." He adds that even as the stock remains attractive, given the stability it still offers, after the run-up of 24 per cent this year, some profit-booking is not ruled out.
His concern stems from the loan mix and its likely impact. HDFC has 73 per cent loan exposure to retail customers and 27 per cent to non-retail segment that includes developers. The developer segment has been under pressure for long as demand for real estate (retail and commercial) remains weak. Mistry believes that while the recently implemented Real Estate (Regulation and Development) Act is a long-term positive, he doesn't rule out short-term pullback in property sales. Therefore, even as margin is better in non-retail segment, much of the growth would depend on lease rental discounting (LRD), where spread is marginally lower than developer loans. It will thus be interesting to see how HDFC sustains high four per cent NIM. Overall loan book grew 14.4 per cent in Q4 with retail (individual) loans growing 13.6 per cent while wholesale loans expanded faster at 16 per cent, helped by LRD.
Going ahead, if retail loans outpace non-retail ones, it will be a positive for HDFC.