Key points to watch for HDFC Q3 earnings

Moneycontrol Bureau

India's largest housing finance company HDFC is likely to report over 15% year-on-year growth in its third quarter (October-December, FY13) net profit at Rs 1,132 crore. Its total loan book would expand in the range of 20-22% y-o-y, according to an average estimate by 14 brokerages.

"HDFC is unlikely to spring any surprise, be it positive or negative," Dinesh Sukhla, a senior banking analyst from Sharekhan told moneycontrol.com.

"Due to its widespread network, loan growth should be robust. However, the housing finance company may be facing increased competition from SBI, its nearest rival in home loan business. We need to understand how the company is placed to survive the competition. Any impact on its interest spread, if at all, needs to be factored in," he said.

The spread or the difference between loan yields and cost of borrowings, is expected to be around 2.25%, little changed from the July-September quarter. For the quarter ended September 30, 2012; HDFC's outstanding loans (net of loans sold or securitized) stood at about Rs 1.55 lakh crore, up 22% y-o-y. Home loans account for a little over two-thirds of the loan book. The rest comes from the loans to builders.

Currently, SBI is offering the cheapest home loan rate in the industry at 10% for loans up to Rs 30 lakh. For HDFC, it is at 10.25% for the same.

"The cost of borrowings and asset quality are the other two important factors to be watched for. Any increase on the both the fronts may add to the negative outlook for the lender," said an NBFC analyst from a brokerage associated with a foreign bank. He has assigned 'neutral' rating to HDFC shares.

In Q2, FY13; gross non-performing liability ratio stood at 0.77% as against 0.74% in April-June quarter. The softening interest rates should help bringing down the cost of funds. HDFC mops up funds through bank term loans, bond (private placements) and debenture issuances, corporate deposit schemes as well as international fund raisings.

The lender raises majority of funds (54% of the total borrowings) through bond and debentures wherein coupon rates are falling following a drop in the 10-year benchmark government bond yield.

saikat.das@network18online.com

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