HDFC Q2 earnings: Higher dividend income boost bottomline

Most global brokerages have retained a bullish view on HDFC Ltd shares, after the company’s earnings beat street estimates in the Jul-Sep 21 period. Here are the main highlights, and the outlook going forward.  

Net profit beats estimates: HDFC Ltd has reported a 32% year-on-year rise in standalone net profit at Rs 3,780 crore for Jul-Sep 21 quarter, beating street estimates. Analysts had earlier anticipated a net profit of about Rs 3,700 crore. The higher bottomline was due to a 3-fold rise in dividend income during the quarter. HDFC received the dividend income from holdings in its subsidiaries including HDFC Bank, HDFC Life Insurance, and HDFC AMC.

Net interest income rises: NBFCs primary business is to borrow money and lend the same at a rate higher than the rate at which they borrowed. The income generated from this differential is known as net interest income. This is an extremely important number to truly find out as to how much the company is earning from its core operations. HDFC's net interest income (NII) increased by 13% year-on-year to Rs 4,108 crore for the Jul-Sep 21 quarter. 

HDFC results: Snapshot

Strong loan growth: HDFC’s assets under management (AUM) at the end of the Sep quarter, stood at Rs 5.97 lakh crore, up 10.5% as compared to last year. Individual loans comprise 78% of the total AUM. On an AUM basis, the growth in the individual loan book was 14%. During the Apr-Sep 21 period, individual approvals and disbursements grew by 67% and 80% respectively compared to the corresponding period in the previous year. Notably, 89% of new loan applications were received through digital channels.

Asset quality worsens: The Gross NPAs for the quarter ended September-21 stood at Rs 10,341 crore, equivalent to 2% of the loan portfolio against 1.08% in the same period previous year. Restructured loans rose to 1.4% of the book, compared with 0.9% a quarter ago. This was mainly due to higher restructuring of retail housing loans on account of the second Covid-19 wave.

Details of restructured loans: HDFC Lad had restructured loans worth Rs 3,522.63 crore under the Reserve Bank of India's first Covid restructuring scheme announced in August 2020. In the second Covid restructuring scheme announced in May this year, the company had restructured loans worth Rs 3,764 crore, comprising Individual retail loans worth Rs 2,719.52 crore, individual business loans worth Rs 914 crore and MSME loans worth Rs 59 crore. Against these restructured loans, HDFC has made a provision of Rs 369 crore. Total provisions for the quarter stood at Rs 13,340 crore as against the regulatory requirement of Rs 6,605 crore.

HDFC Quarterly results review

HDFC, the country's largest mortgage lender, has reported a good set of numbers for the quarter ended Sep-21. The NBFC has reported a healthy rise in bottomline, beating street estimates, aided by a three-fold rise in dividend income. The company has also posted a strong growth in AUM and advances. However, it saw a higher rise in NPAs as compared to the previous year. Further, HDFC has also seen a rise in restructuring. While this could remain a concern, the company has already provided for the same. 

The demand for home loans continues to remain strong. Growth in home loans was seen in both, the affordable housing segment as well as in high end properties. The increasing sales momentum and new project launches augurs well for the housing sector. This should drive good financial performance for the company, going forward.

HDFC earnings in Q2FY22: Brokerage review

Most global brokerages have maintained their bullish view on HDFC shares, as they see the company’s performance improve in the upcoming quarter, aided by strong loan book growth. Loan book and net interest income are expected to grow faster this year. 

Morgan Stanley said that the individual disbursement and the AUM momentum remains strong. Stage 2 and 3 loans have reduced during the quarter, and the Provision Coverage Ratio is also healthy. The NII came in below the brokerage’s estimates. The reserch firm said that it has trimmed its forecasts, but increased the target price due to higher subsidiary valuations. Morgan Stanley has a target price of Rs 3,340 on the shares. 

Jefferies noted that the Q2 net profit was ahead of its estimates. The brokerage noted that HDFC is seeing strong growth in housing loan disbursement. The research house has maintained a Buy call with a target price of Rs 3,480 per share. 

CLSA noted that the best days of strong margin growth are behind us. The global brokerage firm said that its valuation is now close to fair value levels. Hence, it has downgraded the stock to “Outperform” with a target of Rs 3,250 per share. HDFC shares closed 0.4% higher at rs 2,900 on Tuesday.