HDFC on a slow track after Q3FY12

Vidrum / 14 Jan 2012

On 12th January 2012, HDFC posted its Q3FY12 numbers. The result declared was on a muted note and were not in line with market expectations. Company posted a subdued growth in its PAT which grew by 10.14% to Rs 981.25 on YoY basis.

HDFC on a slow track

On January 12, 2012, HDFC posted its Q3FY12 numbers. The result declared was on a muted note and not in line with the market expectations. The company posted subdued growth in its PAT which grew by 10.14 per cent to Rs 981.25 on a YoY basis. The scrip yesterday closed marginally up by 1 per cent. However, today it has closed down by 1.09 per cent at Rs 680. The following table gives us an idea of the results.

                                                                                         Quarterly comparison of the performance


Particulars (Rs / Cr) Q3FY12 Q3FY11 % Change Q2FY12 % Change
Income from operations 4379.34 3148.95 39.07 4077.05 7.41
Profit on sale of Investments 87.99 167.22 -47.38 86.88 1.28
Other Income 5.18 4.87 6.37 5.21 -0.58
Total Income 4472.51 3321.04 34.67 4169.14 7.28
Total Expenditure 3144.26 2108.16 49.15 2831.44 11.05
Profit before tax 1328.25 1212.88 9.51 1337.7 -0.71
Tax 347 322 7.76 367 -5.45
Profit after tax 981.25 890.88 10.14 970.7 1.09


                                                                                                    Nine month comparison


Particulars (Rs / Cr) 9MFY12 9MFY11 % Change
Income from operations 12257.06 8852.63 38.46
Profit on sale of Investments 191.13 226.17 -15.49
Other Income 15.06 14.41 4.51
Total Income 12463.25 9093.21 37.06
Total Expenditure 8621.77 5780.2 49.16
Profit before tax 3841.48 3313.01 15.95
Tax 1045 920 13.59
Profit after tax 2796.48 2393.01 16.86

For nine months ended FY12, its net interest income increased by 18 per cent to Rs 4,039 crore on a YoY basis. The interest income increased by 38 per cent while the interest expenses increased by 51 per cent. Also, a surprising factor was that the company’s interest expenses on a sequential basis also increased by 12 per cent to Rs 3,012 crore. However, growth in the loan book remained strong which, as on December 31, 2011, shows a growth of 21 per cent to Rs 1,32,208 crore.

In Q3FY12, profit from sale of investment decreased sustainably by 47 per cent to Rs 88 crore which resulted in the company’s profitability growing at a slower pace. This was because last year during the same period HDFC had sold a stake to IL&FS which had generated approximately Rs 150 crore, thus boosting its bottomline.
 
The net interest margin (NIM) of the company for nine periods stood at 4.3 per cent which is 10 basis points lesser when compared to a similar period last year. The capital adequacy ratio of HDFC stood at 13.9 per cent which is above the minimum requirement of 12 per cent. The Tier 1 CAR of the company stood at 11.9 per cent.

As per a recent notification dated December 29, 2011 issued by the Ministry of Corporate Affairs (MCA), the company has changed its accounting policy for cross-currency interest rate swaps. If the company had followed the earlier method then its profits would have been lower by Rs 54 crore. The loan growth for HDFC remains strong but the company faces issues on the interest expense front. HDFC is a huge brand and to some extent can command a premium over its peers. At present the company is available at reasonably high valuations. Its price to earning stands at 28.43x while the price to book value is 5.81x.

The company may benefit from the fact that the interest rate cycle will soon reverse and also on the expectation that property prices are to take a beating in the coming quarter. However, when this will pan out is quite uncertain. We advise existing shareholders to remain invested (hold) in the scrip while one should take a pause for any fresh investments in the stock.

 

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