HDFC Ltd Announce Q1FY21 Results!

HDFC Limited, one of India’s largest private lenders, reported a decline in growth and net profit.

The Net profit fell 4.7% YoY to Rs. 3,051 crore in Q1FY21 compared to Rs. 2,532.2 crore in the same period a year ago. During the quarter, HDFC sold shares of HDFC life Insurance, resulting in a pre-tax gain of Rs. 1,241 crore. As of 30th June 2020, HDFC Ltd holds a 50.1% stake in HDFC life Insurance. 

Total Revenue increased a whopping 28.9% YoY to Rs. 29,959.32 crore in Q1FY21 compared to Rs. 23,239.82 crore in the same period a year ago.

HDFC increased provisions on account of COVID-19. The company kept aside Rs. 1,199 crore in the quarter as provision on account of the pandemic. Total Provision stands at Rs. 12,285 crore Gross NPA rose to Rs. 8,631 crore (1.87% of total loans) in Q1FY21 compared to Rs. 8,908 crore (1.99% of total loans) in Q4FY20. The total Net NPA stands at 0.33% (one of the lowest in the industry). 

In view of an uncertain environment, the company has been holding high levels of investments in liquid mutual funds since the announcement of lockdown. As of 30th June, the company has Rs. 30,820 crore (5.8% of total AUM) in liquid funds.

HDFC declared that 22.4% of its total loans were under moratorium compared to 27% in May. 16.6% of Individual loans are under moratorium compared to 22.6% in May. Of the Individual loans under moratorium, 65% has never had a delay in repayment and only 14% faced job loss and business closure.

True NPAs of banks and NBFCs are extremely difficult to calculate currently due to the existing moratorium. Once lifted, the whole banking and finance industry is expected to witness a sharp increase in their NPA’s. Although HDFC has increased provisions for such a scenario, analysts believe that the number will rise even further from current levels. 

Company’s Capital Adequacy stands at 17.3% against the regulatory requirement of 14%  

Deposits of the company grew 26% YoY to Rs. 1,43,335 crore in Q1FY21 compared to Rs. 1,32,324 crore in Q4FY20.

HDFC Limited is one of India’s largest private lenders. They are pioneers and epitome of ethics. The continued slowdown in economic activity has led to a decrease in loan originations, the sale of third party products and the efficiency in collection efforts and waiver of certain fees. The continued slowdown may lead to a rise in the number of customer defaults and consequently an increase in provisions.

 During the quarter, the company focussed on lending to AAA rate corporates. Total disbursements in Q1FY21 was only 71% of the total disbursements in Q1FY20. A significant change during the quarter was a shift to digital sourcing of business through its channel partners. As of date, 80% of business has shifted to digital sourcing.

Disbursements have been slower as many offices were intermittently closed. Retail disbursements stood at 68% of the level of the previous year.

Even though the current economic environment is extremely stressful for the Banking & Finance Industry, we believe HDFC has the necessary firepower to ride out the period and live up to the legacy that it has.

Our VGQM stock analysis model currently has a BUY rating on the stock.

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