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Mumbai, April 11: IN the next five years, according to a research report by Morgan Stanley Dean Witter, HDFC will earn around 50 per cent of its income out of the non-housing finance business.

The non-housing finance activities including IT services, life insurance, asset management and commercial banking will account for 46 per cent of HDFC’s total earnings and 34 per cent of group earnings, the report said. ‘‘HDFC is not just a mortgage story,’’ the report added.

The new businesses enjoy substantial market opportunities compared to HDFC’s existing business. For instance, the size of the life insurance and asset management market are eight to six times, respectively, than that of the mortgage market. Hence, even a small market share in these businesses could result in significant revenue/earnings expansion.

HDFC has entered into a joint venture with Tata Consultancy Services, to set up call centre and back office processing capabilities on a third party basis.

The joint venture is expected to commence operations soon and its customer base will be drawn from the existing call centers in the United States (US) which are looking to outsource business, and from the US financial service firms.

Initially, the call centre will have approximately 100 seats but this could be increased 5,000 seats in five-year’s time.

The revenue and earnings assumptions reveal that there could be significant business over the next five years. There can be a revenue of Rs 880 crore and the earnings of Rs 220 crore for this venture in the fifth year of operation, suggested the report.

This number is significant as HDFC’s share of earnings (assumed to be 40 per cent) from this joint venture could account for as much as 8 per cent of its earnings base on a parent-only basis in 2006.

Not only is the quantum of this earnings base significant but also the quality and profitability of this earnings stream is likely to be superior to HDFC’s core business as the level of capital investment is expected to be limited. On asset management business, Morgan Stanley Dean Witter report expects an earnings base of Rs 43.7 crore in the fifth year. This would account for about 3 per cent of the parent’s expected earnings in that year.

While the numbers are relatively small, they are of high quality given their annuity-like nature coupled with limited capital intensity of the business.

On life insurance business with Standard Life, the report said, in the fifth year of insurance operations the total revenues from this business will touch Rs 1,000 crore.

This amounts to 77 per cent of total revenues from HDFC’s core business indicating the significance of this business.

Also HDFC could generate earnings from two sources in the insurance business — distribution of insurance products through its branches and underwriting profits from the insurance company.