The Hindu Business Line : HDFC: Take cover under it

INVESTORS can park their money in the fixed deposit programme of Housing Development Finance Company (HDFC). The company's fundamentals are strong. The interest on deposits is eligible for deduction under Section 80 L of the I-T Act. Senior citizens are eligible for an additional 0.5 per cent over the prevailing rates.

However, the interest rates are lower than that offered by other housing finance companies such as Sundaram Home Finance. Hence, an investment up to three years can be considered.

Longer tenures, however, can be avoided considering the fluid interest rate scenario and the interest spread compression that is happening in the housing finance industry.

Scheme and features: HDFC offers cumulative and non-cumulative schemes. The interest rate on the former — 5.75 per cent for one year, 6 per cent for two years and 6.25 per cent for three years — is compounded annually.

Hence, the yields for the same are 5.75 per cent, 6.18 per cent and 6.65 per cent respectively. Under the non-cumulative scheme, the company offers monthly, quarterly, half-yearly and annual income plans. Further details can be had from the company's registered office at Ramon House, 169, Backbay Reclamation, HT Parekh Marg, Churchgate, Mumbai 400 020.

Business prospects and financials: HDFC has a strong presence in the housing finance Industry. To increase its revenue base, the company plans to acquire a 10 per cent stake in Egyptian Housing Finance Corporation. In 2003-04, the company's loan disbursements were Rs 12,967 crore against Rs 9,951 crore in the corresponding previous year.

The operating income during the period inched up 2.9 per cent to Rs 2942.9 crore; net profit 23.4 per cent to Rs 851.8 crore.

The company's capital adequacy ratio, as of March 2004, was 13.3 per cent against the RBI's minimum requirement of 12 per cent.

The company's loan recovery performance continues to remain good as the gross non-performing loans, as of March 2004, were 0.89 per cent of the portfolio (0.92 per cent).

The robust demand for housing, coupled with low interest rate regime, tax incentives and increased income levels, augur well for the company's loan disbursements and revenue growth.

However, this may not necessarily lead to earnings growth, given the increasing competition in the housing finance sector.

Suitability: Investors with a portfolio of FD investments, interested in diversifying their risk, can consider this option. Those who prefer monthly returns, can consider the monthly income plan.

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