Analysts upgrade HDFC’s earnings outlook after stellar Q3 show

Growth in home loans was seen in both the affordable housing segment as well as high-end properties, HDFC said.

Housing Development Finance Corporation (HDFC) has reported a strong 27% year-on year (y-o-y) increase in its adjusted net profit before tax to Rs 2,908 crore in Q3FY21. Strong home sales and an equally healthy growth in housing loans helped the mortgage player post a stellar set of numbers for the December quarter.

Individual disbursements during the quarter rose by 26% against a 32% year-on-year increase in loan approvals. Earnings were driven by an increase in net interest income (NII), which saw a robust growth of 26% y-o-y and 12% quarter-on-quarter (q-o-q) at Rs 4,068 crore.

The strong demand for housing appears to be sustainable and not a case of suppressed demand. The lender said the month of December witnessed the highest-ever levels in terms of receipts, approvals and disbursements.

Keki Mistry, CEO of HDFC Limited, said: “We continued seeing strong growth in demand for housing loans and the growth was better than what we expected in October, when we were fairly optimistic. Our individual loan approvals were up 32% compared to what it was in the quarter ended December 2019. While loan approvals were higher by 32%, disbursements rose 26%.”

The increase in housing demand has not only sustained but has picked up pace even sequentially for the mortgage major. During the December quarter, 91% of individual disbursements were for property deals entered over the past four months, which suggest that demand is expected to remain strong in the coming quarters too. HDFC’s net interest margins increased 20 basis points sequentially and 10 basis points y-o-y to 3.4%. The spread on the individual loan book was 1.94% and the same on the non-individual book was 3.14%.

Analysts reacted positively to the performance, with some brokerages even upgrading earnings estimates for the coming fiscal. CLSA has raised FY22/23 earnings estimates of HDFC by 4-5% on higher margins. Morgan Stanely said HDFC’s retail disbursements and revenue momentum have been strong this quarter. Similarly, Credit Suisse noted that individual growth has remained strong for the lender and the asset quality has been stable with healthy provisioning.

The collection efficiency for individual loans in the month of December stood at 97.6%, compared with 96.3% in September. The loans on the assets under management basis grew 9% y-o-y to Rs 5,52,167 crore, against Rs 5,05,401 crore in Q3FY20. Individual loans comprised 76% of the AUM as on December. The individual loan disbursements grew at 26% over the corresponding quarter of the previous year. Growth in home loans was seen in both the affordable housing segment as well as high-end properties, HDFC said.

In its report, Motilal Oswal Institutional Equities said, “The provisions at Rs 5,900 crore were much higher than our estimate of Rs 4,000 crore.” The report said it expects HDFC to report core return on assets (RoA) of 2% and 13% return on equity (RoE) over FY22-23 earnings. A report by Emkay said HDFC has registered a healthy growth and maintained stable asset quality. “HDFC managed to maintain healthy growth momentum of around 16% y-o-y on an improvement in housing demand across geographies,” Emkay said.

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