HDFC Q1 results: Net profit falls but beats estimates

Economic Times | 3rd August, 2021

Mumbai: Housing Development Finance Corpotration (HDFC)reported a 2% fall in its June quarter net profit at 3,001 crore on lower dividend and investment incomes, but the earnings still beat analysts’ estimates, pointing to the robustness of core operations at India’s mortgage lending pioneer

Net profit in the year-ago quarter was 3,052 crore at HDFC. A poll of analysts by Bloomberg had predicted net profit at 2,605 crore. Net interest income (NII), or the lender’s core earnings from lending, climbed 22% and net interest margin surged to 3.70% up from 3.10% reported a year earlier, paced by growth in loans to individuals.

There was a marginal increase in asset-quality slippage that chief executive officer Keki Mistry described as temporary. HDFC carries enough provisions to deal with the stress, he said. Mistry said the company holds 13,189 crore of provisions-more than double the 5,778 crore mandated by regulations.

“The second wave impacted collections and even means like SARFAESI could not be used. However, we are seeing a revival in economic activity and this impact is temporary,” Mistry said. “Our individual loans are secured with an average loan to value of 68%.”

Loans to individuals climbed 22%, and the re was a sharp revival in disbursements through July after the Covid lockdowns disrupted business through the three months to June. Loans to companies and builders fell 9% year on year due to large repayments by the corporation’s REIT borrowers and other AAA rated companies this quarter.

The impact of the second wave was felt on loan collections, pushing the quantum of bad lo ans to 2.24% of advances from 1.98% in the quarter ended March. HDFC also has a 3,700-crore restructuring book. HDFC shares gained up to 1.88% before ending at 2,462 on the BSE.

The lender disbursed 12,518 crore in July, the third-highest for a month ever and behind the more than 16,000 crore disbursed in March – a record. 

Collection efficiency also has improved to 98.3% in June from 98% in March.

Profit fell as unlike last year, HDFC did not have a big income from sale of investments.

Dividend income was also muted as annual meetings of large subsidiaries spilled over to the next quarter. Higher effective tax rate of 23% versus 15% last year also muted profits. Also, interest on excess liquidity fell to 3.16% from 4.62% a year earlier.

Individual loan disbursements climbed three times over the corresponding quarter of the previous year.

“The demand for home loans continues to remain strong and disbursements have picked up with the unlocking of respective locations. While disbursements during April and May of the current financial year were some what impacted, business has reverted to normalised trends in the months of June and July,” the company said in a statement.

The average size of individual loans increased to 30.9 lakh, up from 29.5 lakh at the end of March. Total loan book increased to 5.74 lakh crore, up 8% from 5.31 lakh crore a year earlier. Individual loans comprised 78% of total loans.

“The key risk to business re mains a third wave and variants of the virus,” HDFC said.

The company has appointed lawyer Rajesh Narain Gupta as independent director and chartered accountant PR Ramesh as non-independent director in place of Naseer Munjee and JJ Irani. Both retired earlier this year.