HDFC Ltd
The stock on Friday closed in the negative. Given the state in which the realty sector is, the institution has posted a good set of numbers but they were below the estimates and that disappointed the marketmen. Analysts has set expectations for net profit and NII to rise by 20% but its standalone net profit for Q1FY14 rose 17% at Rs.1173 crore. NII also rose at the same pace at Rs.1794 crore. On the other hand, the market ignored the 34% rise in consolidated net profit at Rs.1707 crore. NIM fell 10 bps (YoY) from 4% to 3.9%. This the institution has explained by stating that NIM dropped as it increased its leverage. Its income from operations rose 13% at Rs.5557 crore. The loan book stood at Rs.1.76 trillion, up from Rs.1.48 trillion last year.
The market was not happy with the fact that it did not earn profit on sale of investments which in Q1FY13 was at Rs.20 crore. Also in Q4FY13, investment gain was at Rs.105 crore. The market doubted credit quality but this is far from the truth as the institution simply did not sell because the market conditions were not conducive. In a Press Release issued, it has stated that ss at June 30, 2013, the unrealised gains on HDFC's listed investments amounted to Rs 33,270 crores as against Rs 27,001 crore in the previous year. This excluded the appreciation in the value of unlisted investments. That to a large extent should settle all worries.
Asset quality remains good. Its Gross NPA, for the 34th consecutive quarter was down at 0.77% v/s 0.79% (YoY). The lender during the quarter made a provision of Rs.1326 crore as per NHB norms and of this, Rs.420 crore was on account of NPLs while the rest Rs 906 crore was made for standard performing loans and other provisions. The lender has clarified that the balance in the provision for contingencies account as at June 30, 2013 stood at Rs 1,801 crore, equivalent to 1.02% of the portfolio. Thus the Corporation carries an additional provision of Rs 475 crore over the regulatory requirements.
Fundamentally, HDFC remains rock solid. The market seems to have over reacted and ignored the good numbers. Those looking to build a long term portfolio, this is a must-have stock.