In our Big Story titled ‘Four stocks to ride out the market volatility’ ( https://tinyurl.com/4stocksBS ) we highlighted how HDFC is a good stock to accumulate for the long term. The company’s fourth quarter results, announced on Friday, reiterate our stance on its healthy financial metrics.

With steady loan growth, stable margins, and asset quality being almost intact, the company’s financials in FY21, remained sort of pandemic-proof.

That apart, HDFC showed continuing improvement in cost-to-income ratio (stood at 7.7 per cent in FY21 compared to 9 per cent in FY20), which coupled with other stable metrics helped achieve a 19 per cent yoy growth in net profits (adjusted for profits on sale of investments, dividends from subsidiaries, etc) at ₹13,823 crore in FY21.

Steady loan growth

In FY21 the company’s loan book grew at a healthy rate of 15 per cent y-o-y; the loan book adjusted to loans sold, however, was up 10 per cent y-oy- at ₹5,69,894 crore. In the first half of the year, with the nation being under a complete lockdown, HDFC saw a 35 per cent y-o-y drop in the disbursements relating to individual loans.

However, in the second half of FY21, the company witnessed a 42 per cent spike in the individual disbursements (March 2021 quarter alone saw a 60 per cent y-o-y spike), with interest rates and real-estate prices inching down.

Several concessions such as a cut in the stamp duty in Maharashtra also aided the growth in home-loan disbursements. Following this, loans to individuals that comprise about 77 per cent of the HDFC’s book, were up 12 per cent y-o-y.

The healthy traction in individual loan disbursements is here to stay and will be the driving factor for company’s growth ahead.

Despite the Centre not having extended the Credit Linked Subsidy Scheme yet for the Middle Income Group (MIG) for FY22, the management has guided for a similar traction in disbursement in the coming quarters as well.

This is because the company has a higher exposure (about 17 per cent of loan book) to the Economically Weaker Section and Low Income Group segments, were the said scheme has been extended.

However, a near-term slowdown is likely in the loan book growth, given the resurgence of the pandemic in the country. That said, pent-up demand for housing is expected to boost growth in the later part of FY22, akin to what was witnessed in FY21.

Besides, the company’s capital adequacy ratio at 22.1 per cent at the end of March 2021, also bodes well for the growth in loan book in the coming quarters.

Despite the falling interest rates, HDFC’s Net Interest Margin (NIMs) marginally inched up 3.5 per cent in FY21, from 3.4 per cent in FY20, indicating its strong liability profile.

Asset quality stable

The company’s overall collection efficiency in the loan book has improved to pre-covid levels. The gross non-performing assets stood at 1.98 per cent of the portfolio in FY21, compared to 1.99 per cent in FY20. The NPAs largely flowed in from loans lent to non-individuals – 4.77 per cent of such loans were classified as non-performing. Of the individual portfolio, only 0.99 per cent were non-performing as of March 2021.

About 0.8 per cent of the company’s AUM (₹4,479 crore) has been restructured under the RBI’s Resolution Framework for Covid-19 related stress, as of March 31, 2021. This too was predominantly from the non-individual portfolio – comprising about 73 per cent of accounts restructured. Besides, the largest account restructured accounted for 0.5 per cent of AUM.

With the said resolution framework having been extended to September 30, 2021, some relief can be expected against any likely stress in the loan book, particularly non-individual book, going ahead.

That apart, the company has also prudently provided for more than double the statutory requirement of provisions against bad loans, to protect from any likely stress in the accounts not covered under the resolution framework.

The company has created provisions to the tune of ₹ 13,025 crore (total provisions as at March 31, 2021) as against the statutory requirement of ₹ 5,491 crore.

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