HDFC’s resilient retail loan book growth is expected to drive the overall profitability. The lender’s on-year loan growth has been in the 14-15 percent band historically
Housing Development Finance Corporation Ltd (HDFC) is expected to report a healthy loan growth and stable margins for the June quarter along with pristine asset quality later today.
The country’s largest housing finance company is expected to report a net profit of Rs 3,902 crore, an increase of 22.7 percent from over the last year on the back of strong loan growth and stable margins, according to an average of estimates of seven brokerages Moneycontrol surveyed.
Net interest income could rise to Rs 4,701 crore for the June quarter, a growth of 15 percent year-on-year.
HDFC’s resilient retail loan book growth is expected to drive the overall profitability. The lender’s on-year loan growth has been in the 14-15 percent band historically.
To be sure, disbursal growth could be tepid on a sequential basis, given that the fourth quarter of FY22 was exceedingly strong for the lender. “Housing off-take continues to hold on well in Q1 even as there may be some seasonal weakness, following a strong March. Borrowers of affordable housing finance companies are firmly back on their business activities, driving off-take in the otherwise dull Q1,” Kotak Institutional Equities wrote in a report.
The company expects a healthy growth in asset under management and non-individual loan book that consists of developer loans and lease rentals may also rebound, analysts said. Motilal Oswal Financial Services Ltd forecast a robust AUM growth of 18 percent for the quarter on the back of a revival in non-individual growth and resilience of the retail loan book.
Developer loan portfolio growth could also aid loan spreads and margins for the lender. That said, rise in the cost of funds could limit the upside on margins. Analysts at Edelweiss Securities expect margins to contract on a sequential basis due to “a higher proportion of variable liabilities.”
For the March quarter, HDFC’s net interest margin was 3.5 percent. “Limited increase in funding cost (majority funding from NCDs and Deposits) and lending rate increases to help in delivering a near-stable spread/NIM,” wrote analysts at Yes Securities in their preview note.
HDFC’s strong point is its asset quality and the lender is expected to continue to report reduction in stress. Credit costs are expected to reduce from a year ago. Gross bad loan ratios could remain stable or even show marginal improvement on a year-on-year basis.
Gross bad loans were 2.6 percent of the loan book for the March quarter. Low stress would mean need for low provisioning incrementally, which would support profit growth. Edelweiss estimates a fall of 40 percent in provisioning on a year-on-year basis.