HDFC meets street expectations, PAT up 18.6% in Q1

India’s largest mortgage lender, Housing Development Finance Corporation Ltd (HDFC) met street expectations to post 18.6 per cent growth in net profit for the first quarter ended June 30, over the year ago period, with an equal rise in loan book.

The lender reported net profit of Rs 1,002 crore last quarter, with loan book growing 19.4 per cent to touch Rs 1,48,262 crore.

HDFC scrip declined 0.6 per cent to close at Rs 678.3 a share on BSE, in a weak Mumbai market on Wednesday.

In a research note, Vaibhav Agrawal (vice president of research-banking, at Angel Broking, said: “The results were largely in line with expectations. HDFC continues to grow its loan book faster than the industry growth rate in home loans (which are slowing down due to the high interest rate environment and subdued economic outlook). Overall, earnings growth was largely in line with expectations, suggesting that spreads and asset quality too would have been more or less in line.”

He added the stock is trading like a defensive one and valuations are already factoring in a premium. “So from these levels, from a 12-18 month perspective, once the cycle turns favourable the stock is unlikely to give high beta returns, hence we are neutral on the stock. That said, in the near-term, given the macro-concerns the stock will continue to command a weightage in defensive portfolios.”

Few weeks ago, Macquarie Securities Research report had alleged that HDFC is adopting aggressive accounting practices to inflate earnings and return on equity and went on to downgrade the housing finance company’s stock. The mortgage lender has since countered the report.

In an unrelated development, early this year private equity firm Carlyle and Citigroup sold shares of HDFC. Global banking major Citigroup Inc exited by selling its 9.85 per cent stake through block deals for over Rs 9,551 crore or $1.9 billion as per prevailing exchange rates. In June 2011, Citigroup sold 1.5 per cent stake in HDFC to bring its holding down to 9.9 per cent in order to meet the Basel III capital rules.

Citigroup’s move came just three weeks after private equity major Carlyle Group sold one-fourth of its stake in HDFC for Rs 1,355 crore. The PE firm part exited with returns of 2x.

(Edited by Prem Udayabhanu)