HDFC Ltd Stock Analysis

HDFC Ltd Q4 FY2019 Result Update

Introduction

In this article, we are going to analyse the HDFC Limited stock. Q4 FY2019 results of the company were declared on Monday, 3th May, 2019. Lets discuss about the HDFC Ltd. Q4 FY19 results also.

Company Profile

Housing Development Finance Corporation (HDFC) Limited is an Indian financial conglomerate based in Mumbai, India. It is a major provider of finance for housing in India. It also has a presence in banking, life and general insurance, asset management, venture capital, realty, education, deposits and education loans.

The Q4 FY2019 results of HDFC Ltd were declared on 13^th May 2019 and they are very good.

HDFC Ltd Q4 FY2019 Results

Net Profit

• The reported Net Profit (Profit after tax) (before Other Comprehensive Income) for the quarter ended March 31, 2019 stood at Rs.2,862 crore compared to Rs.2,257 crore in the corresponding quarter of the previous year, representing a growth of 27%.
• A YoY net profit growth of 27% in such a sluggish market is excellent.
• Even though the real estate industry is not performing well, but HDFC Ltd is consistently performing very good every year, and this is very good thing for the company.

Individual Portfolios

Disbursements to the individual category have increased by 24%. And the Assets under Management in the individual portfolios have also grown by 17%.

Total Loan Book

• As at March 31, 2019, the loan book stood at Rs.4,06,607 crore as against Rs.3,62,811 crore in the previous year. The total loan book of HDFC Ltd can be clearly seen is very huge.
• One thing to be noted here is that, when the loan book is increasing by 10% but the company is still achieving profit growth of 25%+, then the operating efficiency of the company must be improving every quarter and every year.
• The lower growth in the loan book was due to the unfavourable lending environment for non-individual loans that prevailed in the second half of the financial year. Tight liquidity conditions, over leverage and credit rating downgrades led to heightened risks across the corporate sector. In order to preserve asset quality, the Corporation opted to be prudent by curtailing some of its lending to non-individual loans.

Net Interest Income

For the quarter ended March 31, 2019(Q4 FY2019), the net interest income stood at Rs.3,161 crore as compared to Rs.2,650 crore in the corresponding quarter of the previous year(Q4 FY2018), representing a growth of 19%.

Net Interest Margin (NIM)

• This is very important factor for any lending company. This tell about how much is that company earning from their borrowing and lending.
• The NIM of HDFC Ltd is around 3.3%. This is a very steady number considering that they don’t have the advantage of CASA.

Final Dividend

• The Board of Directors recommends payment of final dividend for the year ended March 31, 2019 of Rs.17.50 per equity share of Rs.2 per share compared to Rs.16.50 per equity share for the previous year.
• And in the complete FY19, the company has declared a dividend of Rs. 21 per share (including the current Rs. 17.5 per share).

Non-Performing Assets (NPA’s)

• Gross NPA is of 1.18%. As the company has a loan book of Rs. 4.06 lakh Cr, the NPA’s amount to Rs. 4,400 Cr which have secured through provisioning.
• As the company is very huge, managing the Gross NPA number of 1.8% wont be huge problem for HDFC Ltd.

Cost-to-Income Ratio

• Last year this number was of 9.2%. So, for example, if the company was earning Rs. 100, then a cost of Rs. 9.2 was required to earn that much income.
• This year the cost-to-income ratio has come down to 8.5%. This shows that the company is performing more efficiently.
• On one hand your income is increasing and on the other the cost to earn that income is reducing. Thus, this is very positive factor for the company.

Capital Adequacy Ratio (CAR)

The CAR of HDFC Ltd is 19.1%. This number too, for an NBFC, is very strong.

Market Share

• HDFC Ltd has market share of 35%-40% among all the housing finance companies in India.Thus, very clearly the company has very strong presence in the housing finance market.
• And after the few companies like DHFL and Indiabulls Housing Finance went throng the NBFC crisis and liquidity issues, there are chance that the market share of HDFC Ltd might even go up. The reason behind this is that HDFC Ltd was among the top buyers of loans from these companies when they were facing liquidity issues.

Valuation Of HDFC Ltd In Its Associate & Subsidiary Companies

• HDFC LTD has certain amount of holding in all its associate and subsidiary companies. They are listed companies such as HDFC bank, HDFC AMC, Gruh Finance, HDFC Life and unlisted companies such as HDFC Credila, etc.
• If we take these holdings into consideration, then as on 31^st March 2019, the valuation of those holding comes to around Rs. 1.9 lakh Cr.
• Now this valuation must have increased as the value of HDFC bank has also increased. So, considering 5% appreciation for 31^st March 2019, the current valuation of HDFC Ltd in just its associate and subsidiary companies (listed and unlisted) come to be around Rs. 2 lakh Cr.

Market Capitalization & P/E Ratio

• The current market capitalization of HDFC Ltd is around Rs. 3.3 lakh Cr.
• From this if we take out the above calculated valuation, then the valuation of the core business of HDFC Ltd is Rs. 1.3 lakh Cr.
• The net profit of the core business of HDFC Ltd is close to Rs. 10,000 Cr.
• With these number, it can be said that the core business of HDFC Ltd is trading with a PE of 13 (market cap/net profit).

FY19 Net Profit

• This year the net profit of HDFC Ltd is close to Rs. 9,500 Cr. This has come down for a net profit figure of around Rs. 10,887 Cr in FY18.
• The reason behind that is that, in FY18 HDFC Life got listed and the profits f the company went up because of the listing gains from HDFC Life. The net profit amount added by this activity was around Rs. 5,609 Cr. That amount also included some sale of assets.
• This year too, the company has sold some assets from which it received around Rs. 1,200 Cr. But last years amount was huge because of the listing gains from HDFC Life.

Gruh Finance and Bandhan Bank Merger

• The real winner in this merger is neither Bandhan bank nor Gruh Finance. It is HDFC Ltd.
• Gruh Finance is into affordable housing. Because of this HDFC couldn’t enter the affordable housing loans aggressively. HDFC could not use the full potential of Gruh Finance because of restrictions. After this merger, HDFC Ltd too can enter the affordable housing market and can aggressively take charge there.
• If we look at the total volume of loans given out in FY19, then 37% of the loans have been given in the affordable housing category. Thus, the volume of affordable housing loans was very high.
• If look at it from the value perspective, then 17% of the total loan value were for affordable housing. Definitely the volume is big and the value is small, but the company will definitely look into that the value of the loans also increase.
• Government also has a lot of focus on affordable housing as it has a vision that everyone should have a house till 2022. Hence, the there is high possibility of affordable housing market growing bigger.

Notes: –

• The numbers that are used are approximate and have been rounded for presentation purposes.
• We are not in any way saying that this is a bad company, or the stock of this company is bad.
• We are also not suggesting anyone to immediately go and buy the stock or invest in the stock markets.
• Only an analysis has been presented here. No judgments or final statements are being made here.