Retail segment boosts HDFC Q4 profit
The stock has given investors a return of 6% since January compared to a 1% rise in the CNX Finance index.
HDFC's stock closed 4% higher at Rs 885.6 on Wednesday after touching a 52-week high of Rs 895. The net profit was driven by growth in individual home loans, which comprises 68% of the overall loan book. The loan book grew by 21%, boosted by a 25% jump in the individual home loans segment. HDFC sells a portion of its loan portfolio to HDFC Bank and other banks. Considering this, the total growth would be 31%.
In addition, the non-interest income, which largely includes fees and dividend income, expanded at a higher-than-estimated rate. Despite the decreasing proportion of higher yielding non-individual home loans in its overall portfolio, the non-banking financial institution (NBFC) managed to improve its interest spread over the last year, albeit marginally. This can be attributed to the lower cost of funds due to a decline in wholesale rates. Interest spread is the difference between the interest earned on loans and the interest paid for funds.
Even on the asset-quality front, the lender continued to perform well. For the 33rd consecutive quarter, it reported lower non-performing loans than the previous quarter. Its gross non-performing assets ratio on a 90-day recognition basis stands at 0.70%. The additional deduction of Rs 1 lakh provided by the budget to home owners for loans up to Rs 25 lakh on a property value of Rs 40 lakh will benefit HDFC since the average ticket size of its individual home loans as on FY13 was Rs 21.6 lakh.
According to the management, even the non-individual home loans started showing signs of improvement towards the end of the last quarter; they may pick up further if the GDP growth improves. The stock has given investors a return of 6% since January compared to a 1% rise in the CNX Finance index. In fact, most of its peers have failed to generate any return during the period. The stock is currently available at 2.46 times its book value, which is at a premium compared to its peers.