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HDFC Q1 Results: Net Profit Falls Marginally On One-Off Items, Higher Provisions

HDFC Q1 net profit falls marginally to Rs 3,001 crore.

Signage for Housing Development Finance Corporation Ltd. (Photographer: Vivek Prakash/Bloomberg)
Signage for Housing Development Finance Corporation Ltd. (Photographer: Vivek Prakash/Bloomberg)

Housing financier Housing Development Finance Corporation Ltd. saw its net profit dip marginally because of one-off items and higher provisions in the June quarter.

Net profit for the first quarter stood at Rs 3,001 crore, down 1.73% year-on-year. This is against a Bloomberg consensus estimate of Rs 2,605 crore.

The company said that its net profit was not comparable to last year due to a host of one-off items.

  • Profit on sale of investments was lower at Rs 263 crore, compared with Rs 1,241 crore a year ago.

  • Dividend income in Q1 was at Rs 16 crore, compared with Rs 298 crore a year ago.

  • Charge for employee stock options in Q1 was Rs 146 crore, compared with Rs 1 crore last year.

  • Effective tax rate applicable this year was 23.1%, compared with 15.4% last year.

According to disclosures by HDFC, its net interest income rose 22% year-on-year to Rs 4,147 crore in the first quarter, compared with the analyst estimate of Rs 5,763 crore.

The company's asset quality position weakened, with gross non-performing asset ratio at 2.24% as of June 30, compared with 1.98% in March.

Accounts classified as stage 3, or those with unpaid dues outstanding for more than 90 days, rose 27.6% year-on-year to Rs 13,020 crore. This included individual loans worth Rs 5,841 crore and corporate loans worth Rs 7,179 crore. The company held expected credit loss provisions worth Rs 6,290 crore against these assets.

"Individual NPAs increased due to slippages on account of the impact of the second wave of the pandemic. Collection efforts were hindered due to the recovery teams being unable to do field visits during the lockdown period," the company said in its statement.

Further, various court orders temporarily curbing recovery efforts of financial institutions, including refraining possession under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, hampered collection efforts.

"The average loan-to-value ratio of these loans is around 68%," Keki Mistry, managing director at HDFC, told BloombergQuint in an interview. "The loan amount keeps declining as the customer pays installments, which means that the equity put up by the customer keeps rising."

"Whenever Sarfaesi gets reintroduced ... if we ever have to enforce our rights to the foreclosure law, the amount we will collect while auctioning the property will be much more than the outstanding loan amount," Mistry said.

HDFC expects the recoveries from these bad loans to improve during the second half of the current financial year, if there are no major concerns of a third wave of the Covid-19 pandemic, he said.

The company held provisions worth Rs 13,189 crore at the end of the first quarter, higher than Rs 13,025 crore held in March and Rs 12,285 crore a year ago.

Loans & Advances

Outstanding loans for the company stood at Rs 5 lakh crore, up 7.5% year-on-year. HDFC's assets under management, including outstanding loans it sold, stood at Rs 5.74 lakh crore, up 8% over a year earlier.

  • Loans to individuals rose 14% year-on-year to Rs 3.76 lakh crore

  • Loans to corporate bodies stood at Rs 1.18 lakh crore as on June 30, down 9% over the year ago.

  • Net interest margin during the quarter stood at 3.7%.

  • Unaccounted gains on listed investments in subsidiary and associate companies amounted to Rs 2.61 lakh crore.

  • The company’s capital adequacy ratio stood at 22%, of which tier-I capital was 21.3%.

According to Mistry, the demand situation for housing loans now is even better than where it was during the latter half of the last financial year.

March saw the highest disbursements, while December 2020 would have seen the second highest, Mistry said. July is the third highest even though it's not the last month of the quarter, he said.

The company is seeing a strong demand pipeline from developers in the coming quarters and expects the non-individual loan book to reverse the contraction trend this year.