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HDFC (HDFC)
Banks/Financial Institutions
Business as usual; operating environment remains challenging. HDFC’s
management remains positive on maintaining stable business performance despite
general fears of a slowdown and margin pressures. Notwithstanding a high base and
pressure in select markets, overall demand remains strong for long-term growth.
However, we expect some near-term pressure on spreads due to high funding costs
coupled with moderating retail loan growth. Currently, the business
Guidance for stable margins; but expect near-term moderation
HDFC is confident of maintaining spreads of 2.2% in the medium term. HDFC has raised home
loan rates three times in the past six months—50 bps in September, 75 bps in January and 25 bps
in February. In the past two months, HDFC has raised developer loan rates by about 1.25%. A
tight liquidity environment and the bribes-for-loans scam have affected the ability of developers to
raise funds in the current environment; this will likely augur well for HDFC. In case interest rates do
not moderate in the next few weeks, HDFC may consider a further rate hike. Spreads have been at
2.3% in the past few quarters which will likely moderate to about 2.1-2.2% levels in the near
term. We are modeling a moderate decline in margins in our estimates. Liquidity continues to
remain under pressure though we expect moderation in 1QFY12E.
Mumbai market has slowed down, other markets offer growth
HDFC remains broadly positive on real estate markets. The management does not rule out a
correction in Mumbai wherein prices are above historic peaks; demand has slowed down
substantially in the island city. Mumbai is now the third largest market after NCR and Chennai on
an incremental basis. In NCR, certain pockets appear to be overheated even as the region is the
largest contributor to sales. Business across the large cities of Gujarat has picked up. Bangalore
and Chennai continue to be buoyant markets while demand in Hyderabad has slowed down since
the Telangana issue gained momentum.
Growth guidance remains at 20%; non-retail portion likely to grow faster in the near term
HDFC expects to deliver 20%+ loan growth in FY2011E. The current quarter (4QFY11) has a high
base for retail business and hence the retail business will grow moderately this quarter. We expect
non-retail loans to grow faster in the current quarter with competitive pressures reducing as pubic
banks do not seem to be doing any incremental lending in this segment. Management expects to
maintain the non-retail portion at about 32-35% of the total loan book. We continue to model
about 21% gross loan book growth.
Retail business remains competitive albeit with somewhat moderation
The management highlighted that competitive intensity generally reduces in a tight liquidity
environment as banks have other avenues to lend their funds more profitably. However,
with SBI continuing to offer its teaser loan scheme, LIC Housing remaining very confident on
its growth plans and ICICI Bank also initiating its growth process, we find competition
remaining a strong challenge for HDFC over the next few years.
Education—HDFC still to unravel its business plans
HDFC has acquired a majority stake in Credilia, an education loan company having a loan
book of Rs2 bn. HDFC believes that the education sector will provide a reasonably big
opportunity. The company is actively evaluating various commercial opportunities in the
space but taking cognizance of the social importance of the schooling system.
In addition to education loans, HDFC is also looking at operating schools. The management
believes that most cities have a deficit of good quality schools. Several developers set up schools
in residential complexes but do not have the competencies to manage these schools.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
HDFC (HDFC)
Banks/Financial Institutions
Business as usual; operating environment remains challenging. HDFC’s
management remains positive on maintaining stable business performance despite
general fears of a slowdown and margin pressures. Notwithstanding a high base and
pressure in select markets, overall demand remains strong for long-term growth.
However, we expect some near-term pressure on spreads due to high funding costs
coupled with moderating retail loan growth. Currently, the business
Guidance for stable margins; but expect near-term moderation
HDFC is confident of maintaining spreads of 2.2% in the medium term. HDFC has raised home
loan rates three times in the past six months—50 bps in September, 75 bps in January and 25 bps
in February. In the past two months, HDFC has raised developer loan rates by about 1.25%. A
tight liquidity environment and the bribes-for-loans scam have affected the ability of developers to
raise funds in the current environment; this will likely augur well for HDFC. In case interest rates do
not moderate in the next few weeks, HDFC may consider a further rate hike. Spreads have been at
2.3% in the past few quarters which will likely moderate to about 2.1-2.2% levels in the near
term. We are modeling a moderate decline in margins in our estimates. Liquidity continues to
remain under pressure though we expect moderation in 1QFY12E.
Mumbai market has slowed down, other markets offer growth
HDFC remains broadly positive on real estate markets. The management does not rule out a
correction in Mumbai wherein prices are above historic peaks; demand has slowed down
substantially in the island city. Mumbai is now the third largest market after NCR and Chennai on
an incremental basis. In NCR, certain pockets appear to be overheated even as the region is the
largest contributor to sales. Business across the large cities of Gujarat has picked up. Bangalore
and Chennai continue to be buoyant markets while demand in Hyderabad has slowed down since
the Telangana issue gained momentum.
Growth guidance remains at 20%; non-retail portion likely to grow faster in the near term
HDFC expects to deliver 20%+ loan growth in FY2011E. The current quarter (4QFY11) has a high
base for retail business and hence the retail business will grow moderately this quarter. We expect
non-retail loans to grow faster in the current quarter with competitive pressures reducing as pubic
banks do not seem to be doing any incremental lending in this segment. Management expects to
maintain the non-retail portion at about 32-35% of the total loan book. We continue to model
about 21% gross loan book growth.
Retail business remains competitive albeit with somewhat moderation
The management highlighted that competitive intensity generally reduces in a tight liquidity
environment as banks have other avenues to lend their funds more profitably. However,
with SBI continuing to offer its teaser loan scheme, LIC Housing remaining very confident on
its growth plans and ICICI Bank also initiating its growth process, we find competition
remaining a strong challenge for HDFC over the next few years.
Education—HDFC still to unravel its business plans
HDFC has acquired a majority stake in Credilia, an education loan company having a loan
book of Rs2 bn. HDFC believes that the education sector will provide a reasonably big
opportunity. The company is actively evaluating various commercial opportunities in the
space but taking cognizance of the social importance of the schooling system.
In addition to education loans, HDFC is also looking at operating schools. The management
believes that most cities have a deficit of good quality schools. Several developers set up schools
in residential complexes but do not have the competencies to manage these schools.
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