HDFC weathers RERA, GST in September quarter to show mortgage kingship


The quarterly results of Housing Development Finance Corp. Ltd (HDFC) have followed an identical script for long, with the mortgage king never really throwing a nasty surprise to the market.

The September quarter numbers are no different and HDFC’s profit beat Street estimates marginally, by growing 15% to Rs2,101 crore. It has maintained profit growth in the mid-teens even during bad times. Core operations continued to be strong as net interest income grew 14%, albeit marginally down from the previous quarter’s 16% growth. This comes on the back of a strong loan growth of about 18% from the year-ago period, maintained for several quarters now.

That HDFC continues to grow its book fast despite it being the market leader shows its aggression in the mortgage segment. What is impressive is that the lender managed to show such growth at a time when the goods and services tax (GST) and Real Estate (Regulation and Development) Act (RERA) had dampened the sector during the quarter. The lack of clarity on whether real estate will eventually fall under the ambit of GST also weighed on the sector.

Loans to individuals again grew at a steady 16% while that to developers grew at a faster 24%. Disbursals during the first six months of the current fiscal year grew at a healthy 23%.

RERA came into effect in May and most states began implementing the registration process in the following months, slowing down property sales of developers.

Although developer loans have been growing faster than that to individuals for many quarters now, their share in total growth is still 30%. Developer loans earn HDFC a higher spread than individual loans and hence are a good bet to increase margins. Its spread on individual loans shrank three basis points to 1.92% which was made up by an increase in non-individual loan spread to the same extent. That made the lender keep its net interest margin steady at 3.9%.

But the price the lender pays to pile on riskier corporate borrowers is the rise in bad loans. HDFC’s asset quality is still enviable with total non-performing loans still below 2% of the book. However, they have ticked up for the second straight quarter to 1.18% mainly because of a higher slippage in the developer loan book.

While the increase in bad loans should make investors wince, HDFC’s growth makes it easier to justify the valuation of 2.9 times its estimated profit for fiscal year 2019.

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