HDFC, the market leader in the home finance segment, is on a strong footing, showing net profit growth of 12 per cent in 2013-14. Steady demand in the housing loan market has held the company in good stead

Despite macro-economic challenges, HDFC’s retail loan portfolio has maintained a steady growth (20 per cent), driven by first-home buyers in the mid-income group. The growth has mainly been volume driven, with only 2 per cent increase in the loan amount size. The average size of individual loans was ₹22.1 lakh in 2013-14, compared with ₹21.6 lakh the previous year. In 2012-13, the company’s average loan size increased 10 per cent.

The retail segment contributes 71 per cent of HDFC’s loan book and the incremental growth in 2013-14 was mainly from this segment (85 per cent).

Commercial segment

But the non-retail segment comprising developer financing and other corporate loans remained sluggish. Subdued projects offtake and slow pick-up in demand for commercial space resulted in a modest 9 per cent growth in this segment in 2013-14.

HDFC’s diversified funding mix has helped the company maintain its net interest margin in a volatile interest environment. When raising funds through the bond market became costlier (after the liquidity tightening measures by the RBI in July), the company was able to switch among different funding sources — bank borrowings, deposits and bonds.

The NIM at 4.1 per cent in 2013-14 is just 10 basis points lower than in the previous fiscal. HDFC’s share of funding from bond markets came down to 51 per cent in 2013-14 as against 56 per cent in 2012-13.

The company has also maintained clean asset quality. The gross non-performing assets at 0.53 per cent of loans in the retail segment is down from 0.58 per cent last year. However, there has been some pressure in the non-retail loan segment, where the NPA increased marginally from 0.91 per cent to 1.01 per cent of loans. Higher risk was also one of the reasons why the company slowed its pace of growth in this segment.

Its subsidiaries, including life insurance and general insurance, have increased their share of consolidated earnings from about 13 per cent four years back to nearly a third. The HDFC stock should continue enjoying a premium over peers due to its steady earnings, good asset quality and dominant presence.

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