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Key Takeaways
Core essence:The housing finance business is likely to grow at a CAGR of 20-25%
over the next 10 years; RoE would improve by at least 100bp every year. Subsidiaries
will contribute significantly to growth now.
Industry insights
Inflation remains high. RBI is likely to increase rates by at least 25bp. Growth continues
to be strong in rural areas and metros (except Mumbai).
HDFC remains optimistic about demand for housing finance. India's mortgage to
GDP ratio is 9% as against 80%+ in other developed countries like UK and USA.
The key growth drivers are: (1) higher affordability due to increase in disposable
income - the average house value has declined from 22x annual income in 1995 to
4.8x in 2011, (2) rising urbanization - to increase from ~31% in 2011 to 40% by
2030, and (3) favorable demographics - average age of home buyers is 35 years,
and currently, ~60% of India's population is below the age of 30 years.
Government statistics place current housing shortage in India at 25m units (14m
units in rural and 10.6m in urban areas).
Company vision and strategy
HDFC maintains standard of income based lending, thereby cancelling out exposure
to volatility in real estate prices.
On AUM basis, company will keep individual loans to corporate loans ratio at 70:30.
Owned branches and affiliates will continue to be a dominant source for loan growth
(currently contributing 92%).
HDFC will continue to maintain flexibility on the borrowing side. In a rising interest
rate and tight liquidity scenario, retail deposits remain a key funding source. Flexibility
in funding sources helps HDFC to maintain spreads in a band of 2.15-2.35%.
HDFC plans to improve RoE by ~100bp every year.
Key triggers/milestones/challenges
Improving profitability from asset management and insurance businesses will be
key to long-term profitability.
Listing of insurance arm is an important trigger to unlock value, though this is unlikely
in the near term.
Margins will sustain in the traditional range of 2.15-2.25%.
While standalone earnings will continue to grow at around 20%, consolidated
earnings growth will be even higher.
Mr Keki M Mistry is Vice Chairman
and CEO of Housing Development
and Finance Corporation (HDFC).
Mr Mistry began his career with
Indian Hotels Company Limited, and
joined HDFC in 1981. He was
inducted on to the board of directors
of HDFC as Executive Director in
1993 and elevated to Managing
Director from November 2000. In
October 2007, Mr Mistry was
appointed Vice Chairman &
Managing Director of HDFC and
became Vice Chairman & CEO in
January 2010.
Mr Mistry obtained a bachelors
degree in Commerce from Bombay
University. A qualified Chartered
Accountant and Fellow Member of
the Institute of Chartered
Accountants of India, Mr Mistry is
also a member of the Michigan
Association of Certified Public
Accountants, USA.
Mr Mistry is a director on the boards
of several Indian companies.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key Takeaways
Core essence:The housing finance business is likely to grow at a CAGR of 20-25%
over the next 10 years; RoE would improve by at least 100bp every year. Subsidiaries
will contribute significantly to growth now.
Industry insights
Inflation remains high. RBI is likely to increase rates by at least 25bp. Growth continues
to be strong in rural areas and metros (except Mumbai).
HDFC remains optimistic about demand for housing finance. India's mortgage to
GDP ratio is 9% as against 80%+ in other developed countries like UK and USA.
The key growth drivers are: (1) higher affordability due to increase in disposable
income - the average house value has declined from 22x annual income in 1995 to
4.8x in 2011, (2) rising urbanization - to increase from ~31% in 2011 to 40% by
2030, and (3) favorable demographics - average age of home buyers is 35 years,
and currently, ~60% of India's population is below the age of 30 years.
Government statistics place current housing shortage in India at 25m units (14m
units in rural and 10.6m in urban areas).
Company vision and strategy
HDFC maintains standard of income based lending, thereby cancelling out exposure
to volatility in real estate prices.
On AUM basis, company will keep individual loans to corporate loans ratio at 70:30.
Owned branches and affiliates will continue to be a dominant source for loan growth
(currently contributing 92%).
HDFC will continue to maintain flexibility on the borrowing side. In a rising interest
rate and tight liquidity scenario, retail deposits remain a key funding source. Flexibility
in funding sources helps HDFC to maintain spreads in a band of 2.15-2.35%.
HDFC plans to improve RoE by ~100bp every year.
Key triggers/milestones/challenges
Improving profitability from asset management and insurance businesses will be
key to long-term profitability.
Listing of insurance arm is an important trigger to unlock value, though this is unlikely
in the near term.
Margins will sustain in the traditional range of 2.15-2.25%.
While standalone earnings will continue to grow at around 20%, consolidated
earnings growth will be even higher.
Mr Keki M Mistry is Vice Chairman
and CEO of Housing Development
and Finance Corporation (HDFC).
Mr Mistry began his career with
Indian Hotels Company Limited, and
joined HDFC in 1981. He was
inducted on to the board of directors
of HDFC as Executive Director in
1993 and elevated to Managing
Director from November 2000. In
October 2007, Mr Mistry was
appointed Vice Chairman &
Managing Director of HDFC and
became Vice Chairman & CEO in
January 2010.
Mr Mistry obtained a bachelors
degree in Commerce from Bombay
University. A qualified Chartered
Accountant and Fellow Member of
the Institute of Chartered
Accountants of India, Mr Mistry is
also a member of the Michigan
Association of Certified Public
Accountants, USA.
Mr Mistry is a director on the boards
of several Indian companies.
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