HDFC puts up a good show in March quarter

The housing financing company has done well on some fronts in the March quarter (Q4FY22) results. For instance, net interest income (NII), which is the difference between interest earned and expended, rose by 14.2% year-on-year (y-o-y) to ₹4,601 crore, higher than ₹4,380 crore that broking firm Prabhudas Lilladher had estimated. HDFC’s NII growth was led by a 15% y-o-y increase in assets under management (AUM) to ₹653,902 crore as at FY22 end. Individual loans, which formed 79% of the AUM, fared well, reporting 17% y-o-y growth (on an AUM basis).

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For FY22 as a whole, HDFC’s individual loan disbursements went up by 37%. In fact, it clocked highest-ever monthly individual disbursements in March. The average size of individual loan was ₹33 lakh in FY22. Also, the non-individual loan book saw increased traction.

Asset quality improved sequentially. Note that HDFC continues to report non-performing loans (NPL) in accordance with the circular issued by the Reserve Bank of India dated 12 November 2021. Total gross NPL as at 31 March declined to 1.91% of the portfolio from 2.32% as at 31 December 2021.

Credit costs declined from 56 basis points (bps) in FY21 to 33bps in FY22. One basis point is one-hundredth of a percentage point. The management mentioned in the earnings call that it expects credit costs to normalize further and reach pre-covid levels, which would have a positive impact on return on equity.

Going ahead, the outlook is strong, the management commented. Growth in home loans in both segments—affordable housing and high-end properties—is likely to continue. However, higher borrowing costs would weigh on the net interest margin, which remained stable at 3.5% in FY22.

With respect to the merger of HDFC Bank Ltd and HDFC, the management said that the merger process is on track and that the same would generate cross-selling opportunities. HDFC’s mortgage business would have access to HDFC Bank’s lower cost of funds.

Also, a series of regulatory changes have paved the way for the merger becoming more attractive now. Even so, higher competition in the housing loans segment is a key risk. So far this calendar year, the HDFC stock has declined by 12%.