The growth looks impressive at a time when IIP has edged up by a mere 2.7 per cent and 3.8 per cent in April and May 2002 respectively. Moreover, in absolute terms the growth is quite commendable as the topline has ranged between Rs 630-670 crore during the recent quarters, bar a rise to Rs 726 crore during last quarter of fiscal 2002.
Approvals and disbursals continue to grow apace. The same went up by 32 per cent to Rs 2,104 crore and by 31 per cent to Rs 1,607 crore respectively. However, growth rates in individual approvals as well as disbursals, that together account for about 73 per cent of revenues, were up 35 per cent and 37 per cent respectively.
A steady decline in deposit rates has also spurred growth. Since April 2001 HDFC, has reduced rates by 200 basis points (bps). Of these, the last fiscal itself accounted for five rate cuts aggregating 175 bps. With the continuation of low interest rate regime and the recent cut announced by the State Bank of India on deposits, there is a further likelihood of a rate cut.
Interest expended as a percentage of operational income was lower by 220 bps at 75.4 per cent. HDFC, taking advantage of lower interest rates, has been prepaying high cost borrowings besides lowering interest rates on its existing liabilities. Its recent five-year bond issue that was placed at an annualised cost of 8.6 per cent as compared to 11 per cent earlier is a case in point. These lower interest costs have helped HDFC protect its spread. Staff costs and other expenses too were kept in check leading to a 220 bps jump in operating profit margin to 24.5 per cent. Tax provision jumped by 49 per cent paring down net profit growth to 20 per cent from 24 per cent at the PBT level at Rs 137 crore.
With the continuation of fiscal incentives, housing loan business continues to be a safe and steady bet. It seems unlikely that the higher-end of real estate market will rebound in the near future. However, there is a firmness in the lower-end segment ie, the Rs 5 lakh-Rs 20 lakh segment that will continue to drive growth for housing finance companies.
Lately, SBI has emerged as a formidable competitor in the housing business and together with ICICI Bank has gobbled up a significant chunk of incremental growth in housing. However, it is to the credit of HDFC that it has so far been able to protect its perch as well as margins.
How long will it be able to continue to do so remains to be seen as sooner competition will catch up with it and margins may come under pressure. Forays into insurance, call centres and other business segments are yet to bear fruit. But till then favourable business conditions and HDFC’s dominant market share should help it to grow at a steady clip.