Moderation in Housing Development Finance Corporation's (HDFC) asset quality in the December 2018 quarter (Q3) — mainly from the non-individual segment — coupled with slower growth in the loan book, impacted investor sentiment. The stock shed 1.5 per cent to close at Rs 1,918 on a day when majority of the non-banking financiers were trading in the negative.
The company’s net profit of Rs 2,114 crore in Q3 was lower than the Rs 2,210 crore estimated by analysts. However, there is not too much cause for concern.
Lalitabh Shrivastawa, AVP (Research) at Sharekhan, believes the lender’s balance sheet strength, as well as consistency and quality of earnings, continue to be key differentiators. These will provide major support to its premium valuations (HDFC
is trading at 3.3 times its FY20 book, against the peer average of under-2 times).
The housing finance major witnessed a 28-basis-point (bps) rise in gross non-performing assets (NPAs) from the non-individual portfolio, on a sequential basis, to 2.46 per cent. The firm has 12 per cent exposure to the riskier construction/developer loan book.
Yet, a steady individual loan portfolio (70 per cent of its book) restricted the overall asset quality deterioration in Q3 to 1.2 per cent, as against 1.13 per cent in the September quarter.
Keki Mistry, vice-chairman and CEO of HDFC, believes asset quality is not worrisome and the company has healthy provisioning in place. It has Rs 5,220 crore balance in loan loss and provisioning — 70 per cent above the regulatory norm.
HDFC’s overall book, however, rose at the slowest pace (13 per cent) among the past many quarters. While the individual loan book grew 14 per cent year-on-year, non-individual loan book rose just 9 per cent.
A dismal performance in the corporate segment impacted non-individual portfolios. However, given the higher base in the preceding quarters, the reported AUM growth is strong, say analysts.
In addition, the management is confident that factors such as rise in affordability, with a relatively faster rise in income levels than housing prices, as well as the lower housing-sector penetration in the country and the government’s focus on this space, will fuel individual housing loan demand.
On the profitability front, spread — difference between income earned on loan and cost of borrowings in Q3 — remained little changed at the year-ago level of 2.3 per cent, within HDFC’s historical range of 2.20-2.35 per cent.