HDFC Ltd's FY21 earnings reflects its improving market positioning with capital buffer and efficiency, funding cost benefit and contained stress (stage-2/3 pool at 8.7%). Despite weak real estate sentiment amidst covid and 27% exposure to non-individual segments, credit cost was mere 60bps in Q4FY21 as well as FY21. On stress pool (stage-2/3) of 24%/3% in non-individual/individual segments, HDFC is carrying provisions of 8.16%/0.65%. On individual loans, disbursement growth of 60% YoY (3% for FY21) suggests gain in market share. Non-individual AUM growth under pressure due to repayments, pre-payments and cautious stance. Despite shift in mix towards retail segments, NIMs were sustained due to benefit from lower funding cost. AUM growth momentum in low double digits (13% in retail segment) and overall provisioning buffer of 2.6% (of advances) improves visibility on growth and credit cost outlook. Maintain BUY with an SoTP-based target price of Rs 3,307. Key monitorables will be: behaviour of 24% of the non-individual stress pool, and rising competition in retail segment.
- Stage 2/3 pool down from 9.3% to 8.7% with some resolutions; collection efficiency broadly stable: Collection efficiency for individual loans has improved only marginally from 97.6% in December to 98% in March. GNPLs settled at 1.98% -- slightly higher than Q3FY21 proforma GNPLs of 1.91% - with individual NPLs at 0.99% (0.98% QoQ) and non-individual NPLs at 4.77% (4.35% QoQ). Stage-3 assets were flat QoQ at 2.3%; however, stage-2 were down from 7.1% to 6.3% due to resolutions in a few non-individual loans during the quarter. Almost 19% of non-individual loans are in stage-2 constituting more than 75% of overall stage-2 pool. HDFC is carrying provisions of 21% on non-individual stage-2 assets. Stage-2 in the individual book is less than 2%. Company has been proactive in downgrading loans to stage-2 wherever it sees even the slightest degree of stress or has sought OTR or ECLGS benefit.
- Restructuring was lower than in Q3FY21; ECLGS less than 50bps: Restructuring came in lower than in Q3FY21 at Rs44.8bn - 0.8% (compared to Rs50bn or 0.9% of AUM in Q3FY21). Of the loans being restructured, 27% are individual loans and 73% are non-individual (Rs32bn classified in stage-2). Of the overall restructuring, Rs26bn (0.5% of AUM) pertains to a single group, Shapoorji Pallonji. Balance restructuring in non-individual segment is spread across various accounts. ECLGS request of Rs24.8bn is also majorly included in stage-2, though only Rs9.6bn has been disbursed as yet.
- Credit cost at sub-60bps for Q4FY21 as well as FY21: With incremental provisioning of Rs7.2bn, outstanding provisions inched up from Rs123bn to Rs130bn - 2.6% of EAD (exposure at default). Write-offs were less than Rs1bn during the quarter vs Rs6.4bn in Q3FY21 and Rs13.7bn for fiscal FY21. Company carries cumulative covid provisions of Rs8.4bn (<20bps). With this buffer, incremental provisioning requirement will be capped at 0.7%/0.4% over FY22E/FY23E respectively.
- Market share gain in retail; repayments/prepayment weigh on non-individual segment growth: With disbursements of Rs400bn (up 60% YoY) in individual loans in Q4FY21, disbursements that were at 86% of 9MFY20 in the first nine months, ended fiscal FY21 with 3% growth. March, despite being impacted due to disruption in Maharashtra and other states, witnessed the highest ever levels in terms of receipts, approvals and disbursements. This supported 13% growth in individual loans (up 4.8% QoQ), thereby pushing overall AUM growth to 10.3% (up 3.2% QoQ). Run-down and prepayments continued in non-individual segment. FY21 witnessed ~Rs90bn of repayments due to REITs equivalent to almost 7% of non-individual AUM.
33% of home loans approved in volume terms and 16% in value terms were to customers from the Economically Weaker Section (EWS) and Low Income Groups (LIG). We are building-in loan growth of 14-16% over FY22E/FY23E.
- NIMs up 10bps despite 'interest on interest' reversals: Interest expenses were down sharply by 14% YoY / 4% QoQ thereby supporting NIMs at 3.5%. Loan spreads continued at 2.29% (2.28% in Q3FY21) - individual loan spreads at 1.93% (1.94% in Q2FY21) and non-individual at 3.22% (3.14%). This was despite 'interest on interest' reversal of Rs1.15bn on loans above Rs20mn - approximately 10bps impact on NIMs. Unwinding of liquidity to Rs157bn vs Rs168bn/Rs225bn/Rs320bn in Q3FY21/Q2FY21/Q1FY21 and bank borrowings getting repriced, supported decline in funding cost. We expect NIMs of 3.3%/3.2% in FY22E/FY23E respectively.
- HDFC reported Q4FY21 PAT of Rs31.8bn - up 40% YoY / 9% QoQ and ahead of expectations due to much lower credit cost of 60bps (at Rs7.2bn against expectations of Rs9bn) and also higher fair value change of Rs4.7bn. Also, Q4FY21 earnings included:
* Net gain on fair value changes and income on loans assigned: Rs4.4bn
* Charge for employee stock options: Rs1.4bn
* Fair value gain on investments of Rs4.7bn
* RWA is further down 2.6% QoQ despite Rs144bn of book accretion during the quarter - reflecting capital efficiency at play.
Shares of HOUSING DEVELOPMENT FINANCE CORP.LTD. was last trading in BSE at Rs.2496.25 as compared to the previous close of Rs. 2430.55. The total number of shares traded during the day was 224612 in over 15919 trades.
The stock hit an intraday high of Rs. 2507 and intraday low of 2439. The net turnover during the day was Rs. 555751082.