Housing Development Finance Corporation, the country's fifth-most valued company, will announce its September quarter (Q2) results on Monday. According to brokerages, net profit is expected to show strong growth aided by the stake sale in Gruh Finance -- which completed the merger process with Bandhan Bank last month -- but deferred tax assets (DTA) adjustment and marked-to-market loss in HDFC's RBL Bank investment may prove a dampener. The company may also report a dip in corporate loan growth due to slowdown in the real estate sector.
Here's a detailed look at what to expect from HDFC's Q2 report card:
In a recent earnings preview, the analysts at ICICI Securities predict profit after tax (PAT) to jump 47 per cent year-on-year to Rs 3,628 crore led by "higher other income of Rs 3,421 crore", including the gain of Rs 1,632 crore from the stake sale in Gruh Finance and "Rs 1,074 crore dividend from subsidiary", The Business Standard reported. Analysts say that the gains from the sale of Gruh Finance will provide sufficient liquidity to the housing finance behemoth. Prabhudas Lilladher, however, projects HDFC's net profit to decline 39 per cent y-o-y to Rs 1,951.9 crore. The company had posted standalone net profit at Rs 3,203.10 crore for the first quarter ended June 30, 2019.
On an average, analysts expect the pre-provision operating profit (PPOP) to fall in the Rs 5,126.7- 5,839 crore range.
"We expect HDFC to deliver 15 per cent YoY growth in loans under management on the back of 17 per cent growth in the retail business," Kotak Institutional Equities said in a recent note. On the other hand, ICICI Securities claims that the ongoing slowdown within the real estate sector may pull down credit growth to 11.5 per cent YoY to Rs 4,22,687 crore, compared to the normal trajectory of 16-17 per cent.
In terms of net interest income, most brokerages expect HDFC to report double digit growth to the Rs 2,808 crore - 3,187 crore range. "Stable spreads will help maintain net interest margins (NIMs) closer to 2.7 per cent levels despite the competition," Prabhudas Lilladher wrote in its note. NIM remained flat at 3.3 per cent in the first quarter of the current fiscal and at 3.5 per cent in Q2FY19. NII was Rs 3,079 crore in Q1FY20 and Rs 2,594 crore in Q2FY19.
Meanwhile, Narnolia Securities eyes borrowings at Rs 3.82 lakh crore and asset under management (AUM) at Rs 4.86 crore.
While analysts expect the asset quality to remain more or less stable, many maintain a negative bias towards the parameter. Prabhudas Lilladher pegs the gross NPA ratio at 1.19 per cent, with provisions seen at Rs 461.5 crore, while ICICI Direct reportedly estimates GNPA at 1.33 per cent. According to analysts at Narnolia, the rise in delinquency in the non-individual segment could put stress on the asset quality.
Traders will also keep a close eye on factors such as revival of real estate sector demand, Jet Airways' resolution, impact on margins due to banks adopting external benchmarking interest rate for home loans, delinquency in the non-individual segment and outlook on the developer loan portfolio.