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HDFC Makes A One-Time Provision of Rs.80 Crore for Contingencies

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Housing Development Finance Corporation Ltd (HDFC) has delivered stronger than expected results for the fourth quarter. Investors were also anticipating such beat results from the company. This was evident when the stock price advanced 1.44 percent each in the NSE, as well as, BSE on Monday. However, there was only one concern, and that is a big jump in the provision for bad loans. This was mainly due to significant provision for contingencies in the current year’s results. Otherwise, the quality of asset looked stable.

Net Profit Jumped

HDFC reported that its net profit had jumped 39.2 percent in the fourth quarter to Rs.2,846.2 crore from the previous year quarter, according to its filing with the stock exchanges. This result is well ahead of the Bloomberg consensus projection of Rs.2,551 crore. This is driven mainly by the sale of its stake in two of its fully owned subsidiaries. The company could realize a pre-tax gain of Rs.265.46 crore from the 100 percent share capital sale to Quikr India Pvt. Ltd. Its subsidiaries in question were HDFC Realty Ltd. and HDFC Developers Ltd.

The top line advanced by 10.3 percent to Rs.9,327.8 crore on a year-on-year term. The housing segment has been impacted by demonetization, as well as, the GST. That is primarily because the government has undertaken steps to curb black money while the industry’s 30 percent of transactions were done only in black money. As a result, the unsold inventory increased as sales dipped about 7 percent between the years 2016 and 2017.

Net interest income is the core income for the housing lender. HDFC witnessed 12 percent expansion to Rs.3,617 crore from the previous year quarter. Its net interest margin also expanded four percent during the same period. The gross non-perform loan ratio slackened a bit to 1.11 percent of the total advances. In the preceding quarter, it was 1.15 percent. As far as net bad loan ratio, it was 0.64 percent in respect of the individual loan portfolio. For the industrial portfolio, net bad loan ratio was 2.18 percent.

The company’s provisions for bad loans jumped to Rs.180 crore from Rs.95 crore in the third quarter. Significantly, Rs.80 crore of this is accounted for a one-time provision towards contingencies. If this is removed, the increase in bad loans provision is Rs.5 crores only.

Other Key Data

HDFC reported a total loan book of Rs.3.59 lakh crore at the end of March. On a year-on-year basis, its overall loan book increased 18 percent of assets under its management. At the end of the financial year, individual home loan accounted for Rs.39,364 crore. On the other hand, the non-individual loan book jumped 17 percent.

The lender witnessed a 26 percent uptick as far as individual loans were concerned. However, this was only after adding back loans of the preceding 12 months. The company’s board has approved raising of a maximum of Rs.85,000 crore through non-convertible debentures on a private placement. HDFC’s share price jumped 6.7 percent during the period of January to March.

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