Demand for Housing loans is strong – HDFC

Update on the Indian Equity Market:

On Thursday, Nifty closed in the red at 15,081. Among the sectoral indices, Media (+1.6%), and Realty (+0.1%) closed higher. Metals (-2.0%), Financial Services (-1.8%), and Financial Services 25/50 (-1.6%) closed in the red. Ultratech Cement (+3.9%), Adani Ports (+3.0%), and Shree Cement (+2.9%) closed on a positive note. JSW Steel (-2.9%), HDFC (-2.6%), and Hindalco (-2.6%) were among the top losers.

Excerpts from an interview of Mr. Keki Mistry, Vice Chairman  & CEO of HDFC with CNBC-TV18 dated 03^rd March 2021:

• Interest rates may bottom out by March-end and there is not much downside expected from current levels.
• The demand for housing loans is extremely strong. In Q3FY21, individual loan disbursements were ~26% higher YoY for HDFC.
• 3^rd quarter of last year (2019) was not impacted by covid, which indicates that the growth was not on a lower base.
• HDFC manages COF (Cost of funds) carefully which helps to manage spread in higher/lower interest rate scenarios. The incremental cost of borrowings is coming down, which led to rate cut by some players. HDFC will also take an ALM meeting to take a decision on this front.
• He said that on a 9-month basis individual loans constituted 76% of total loans and 24% is non-individual loans.
• In non-individual loans, 11% is construction finance and the rest is lease rental discounting. 80% of the growth came from individual loans and the rest from non-individual loans in 9MFY21.
• There is a pickup in demand in every segment.
• Speaking on projects, he said the builders are able to finish projects. Some projects are stuck and they are taking a bit more time to come around.
• The company is not looking to raise capital.
• The company is looking to list HDFC ERGO and HDFC Credila, however, it is still in the planning stage.

Asset Multiplier comments:

• Cheaper home loan rates have helped people to buy homes. The Home loan rates are already at a 15 year low. This has acted as a trigger for rising home loans.
• RBI has lowered its repo by 115 bps since March 2020, the bank has also passed these benefits by offering lower interest rates.
• Many players like SBI, Kotak Mahindra Bank have announced a reduction in home loan interest rates.
• Lower interest rates and lower stamp duty in some regions might act as a demand driver for residential real estate in India.

Consensus Estimate: (Source: Market screener and Investing.com website)

• The closing price of HDFC was ₹ 2,585 as of 04-March-2021.  It traded at 4.4x/4.0x/3.6 the consensus Book value per share estimate of ₹ 582/633/699 for FY21E/FY22E/FY23E respectively.
• The consensus average target price is ₹ 2,921/- which implies a PB multiple of 4.1x on FY23E BVPS of 699/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”