Shares of Housing Development Finance Corp Ltd (HDFC) closed 1.5% higher on the NSE on Monday, a day when the benchmark Nifty 50 index fell 0.20%.
The housing financing company has performed well on a few fronts in its March quarter (Q4FY22) results. For example, net interest income (NII), which is the difference between earned and expenses, grew 14.2% year-on-year (year-on-year). 4,601 crore, more than Broking firm Prabhudas Lilladher had estimated Rs 4,380 crore. HDFC’s NII growth was driven by a 15% year-on-year increase in assets under management (AUM) 653,902 crore by the end of FY22. Personal loans, which constituted 79% of AUM, performed well, reporting 17% year-on-year growth (on AUM basis).
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For FY22 as a whole, HDFC’s personal loan disbursements grew by 37%. In fact, it saw the highest monthly personal disbursements in March. The average size of a personal loan was 33 lakh in FY22. In addition, the non-personal loan book saw an increase.
The asset quality improved gradually. Note that HDFC continues to report Non-Performing Loans (NPLs) as per the circular issued by the Reserve Bank of India dated November 12, 2021. The total gross NPL declined to 1.91% from 2.32% of the portfolio as on March 31. December 2021.
Credit cost declined from 56 basis points (bps) in FY11 to 33 bps in FY12. One basis point is one hundredth of a percentile. Management mentioned in the earnings call that it expects credit costs to further normalize and reach pre-Covid levels, which will have a positive impact on return on equity.
Going forward, the outlook is strong, management commented. Home loan growth is likely to continue in both the affordable housing and high-end property sectors. However, higher borrowing costs will impact the net interest margin, which remained stagnant at 3.5% in FY22.
With regard to the merger of HDFC Bank Ltd and HDFC, the management stated that the merger process is on track and will create opportunities for cross-selling. HDFC’s mortgage business will have access to HDFC Bank’s low cost of funds.
In addition, a series of regulatory changes have paved the way for mergers to become more attractive now. Nevertheless, high competition is a major risk in the housing loan segment. HDFC’s stock is down 12% so far this calendar year.