HDFC home loan demand rises in December quarter

The total income of HDFC in Q3 was 11,792.2 crore, which is flat year on year. Growth was driven by higher personal loan disbursements during the quarter, which grew 16% in Q3FY22. The lender saw its second highest monthly personal loan disbursement in December. This was despite states like Maharashtra giving concessional stamp duty benefits last year, which were absent in FY22.

In a post-earnings conference call, management said that growth in housing loans in the last quarter was seen in both the affordable housing and high-end property segments. The management said that for the nine months ended December, 30% of home loans in terms of volume and 13% in terms of value have been disbursed to customers from economically weaker sections and low-income groups.

As of December 31, personal loans comprised 79% of the company’s total loan book. On the other hand, the non-personal loan business is not getting active enough. “Our calculations show that the non-personal segment has fallen by 1.9% year-on-year in Q3FY22. Raghav Garg, analyst at Nirmal Bang Institutional Equities, said, “The management is optimistic about the turnaround here.

HDFC’s management informed that the loan pipeline for construction financing is strong and it expects the segment to perform well this year. Lender’s net interest income up 7% year over year 4,284 crore while the net interest margin remained unchanged sequentially at 3.6%. However, asset quality declined year-on-year. Gross Non-Performing Assets (NPA) increased to 2.32% as compared to 1.67% in Q3FY21. “The increase in NPAs in this quarter by about 51 basis points (bps) is due to changes in RBI norms. In Q4, HDFC should see some improvement in asset quality and credit cost is likely to come down going forward,” said Vidhi Shah, analyst at Antique Stock Broking Ltd., up one basis point to 0.01%.

“There has been an increase in non-performing loans but no financial impact and credit cost has come down,” HDFC said.

Post Q3 results, HDFC shares rose 2% on NSE on Wednesday. Nevertheless, the stock has underperformed the Nifty Financial Services Index over the past one year. However, the outlook is bullish on the back of strong home loan demand and loan applications pipeline. Union Budget 2022 also brings some excitement with announcements such as allocation of 48,000 crore under the Pradhan Mantri Awas Yojana, which gives a boost to the housing sector.

According to data from Bloomberg, HDFC stock trades at 3.6 times the price-to-book (PB) ratio based on FY23 estimates. It is not exactly comparable, but as per data from Bloomberg, leading private sector lenders such as Axis Bank Ltd and ICICI Bank Ltd are trading in PB multiples of FY23 at 1.93x and 2.98x respectively.

It also helps that the lender’s business model and loan book structure keep it in good standing. “Slippage from the restructuring book is a major factor. Given the prospects and visibility of 15% core return on equities in the near future, HDFC valuations are narrowing,” Garg said.