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HDFC (updated - 10 June 2009)
Home loan major HDFC is picking up money at around 7 per cent by giving investors a sweetener in the form of an equity warrant.

Otherwise, the cost may have been slightly higher at 7.25-7.5 per cent for the three-year paper. Since there seem to be lenders in the market, this is as good a time as any to cash in on their appetite, given that the demand for home loans should start picking up.

The cost of borrowing Rs 4,000 crore in the overseas markets would certainly have been higher with spreads having widened.

The stock has had afairly strong run - since the start of the year it has risen 57 per cent compared with 50 per cent for the Sensex. So, the conversion price for the warrant will be fixed at a high valuation since it will be at a premium to the prevailing market price. This is a good price at which to issue stock and in any case, the company’s equity base will not be diluted by more than 3.5 per cent.

HDFC (updated - 05 Mar 2009)
The HDFC stock hit a two-and-a-half year low on Wednesday to close at Rs 1,161. 60. While the stock is held by several foreign institutional investors who have been selling heavily over the past ten days, the Street is also now more concerned than before that the home loan major’s earnings growth is going to be worse than expected. That there are fewer takers for loans was evident in the marked slowdown in loan approvals in the December 2008 quarter. But the stock has been coming off ever since the State Bank of India (SBI) announced home loans at 8 per cent for the first year with the interest for subsequent years pegged to the bank’s prime lending rate (PLR). That was in early February and, since then, a couple of other banks too are offering cheap loans, some at 8.5-9 per cent without the one year rider. That could mean fewer lending opportunities for HDFC in a very difficult environment.

Since it doesn’t have access to retail deposits the way commercial banks do, its spreads could be under pressure if it reduces rates. Even when things hadn’t turned so bad, in the December 2008 quarter, the growth in pre-exceptional earnings, at just 13 per cent, was clearly disappointing, with approvals falling 7.6 per cent y-o-y. Although this was partly because of fewer loans given to corporates, even loans to individuals didn’t rise too much at just 5-6 per cent. Analysts believe demand could stay subdued, allowing the net interest income to grow by more than 16-17 per cent next year over the estimated Rs 3,300 crore in 2008-09.

Given its superior management, HDFC should not see any significant increases in non-performing loans and, therefore, should not also need to provide more for them. However, despite this, net profits after adjusting for exceptionals are expected to grow by 1718 per cent in the next couple of years. That would be disappointing because HDFC has almost always managed to grow profits by at least 20 per cent.
source - BS

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HDFC (updated - 27 Mar 2009)
Competition is not new to HDFC, after all ICICI Bank was a tough competitor when it went on a customer acquisition spree some years back. This time around, although ICICI may not be in a position to give HDFC a run for its money, public sector banks, especially State Bank of India (SBI) could. The difference between four years ago and now is that money today is not yet cheap and certainly not as inexpensive as it was back in 2004 and 2005. Of course with bank loans to HDFC now treated as priority lending, the cost of funds for HDFC should come down. But should long-term rates go up, HDFC will feel the pinch. That’s why the market sat up and took note when SBI kicked off an 8 per cent inthe- first -year product believing HDFC could lose some market share. In the recent rally, the stock which had plunged to a two year low, has gained 31 per cent to the Sensex’s 23 per cent.

The good news is that transactions could start picking up in the second half of 2009 now that property prices have started trending down as have interest rates. But although the home loan major believes it can manage a growth of 20 per cent in 2009-10, analysts are not so sure. CLSA points out that HDFC’s loan growth (presecuritisation) would be around 15-17 per cent. One reason for this is that HDFC Bank may now hold back a higher proportion of loans that it originates; the bank currently sources just over afourth of HDFC’s loans. As a result HDFC’s operating income may increase by about 15 per cent in 2009-10 while its net profits should grow by about 10-12 per cent. HDFC has always scored when it comes to keeping bad loans in check, which is why a few delays or even defaults will not hurt the balance sheet. At Rs 1,653,the stock trades at around 2.8 times the estimated adjusted book value for 2009-10.
source - BS

HDFC’s weighted average cost of funds came down by around 50-75 bps sequentially in the March 2009 quarter with the marginal cost falling by about 200-250 bps. In the current year, the loan book should grow by at least 20 per cent - sanctions were up 17 per cent y-o-y in the March quarter on a high base. However, at Rs 2,359 the stock trades close to its sum-of the-parts value of Rs 2,300.
source - BS

HDFC Ltd (updated - 23 July 2009)
The Housing Development Finance Company (HDFC) stock slipped around 4.5 per cent on Wednesday to Rs 2,410 after the home loan company announced results for the June 2009 quarter. The Street was perhaps somewhat disappointed with 13 per cent growth in the loan book — HDFC has typically clocked growth of at least 20 per cent and this is the lowest increase in several quarters. However, it’s possible there was some amount of pre-payment of loans during the quarter.

Nevertheless, business appears to be picking up with sanctions and disbursements during the quarter growing a reasonably good 23 per cent and 21 per cent, respectively. It should be remembered that HDFC has been securitising assets — in the March 2009 quarter, loans amounting to around Rs 4,000 crore were securitised.
Over a 12month period, the amount has been close to Rs 6,000 crore. The 11 per cent year-on-year growth in net interest income in the June quarter may not have been very strong but was creditable given the challenging environment.

HDFC’s portfolio remains as clean as ever with nonperforming loans (due for over six months) down to 0.58 per cent from 0.71 per cent at the end of June 2008.

HDFC Ltd (updated - 19 Aug 2009)
The cost at which home loan major HDFC is borrowing Rs 4,000 crore — 7.15 per cent for two years and 7.85 per cent for three years — is very reasonable. The money will come in handy for the company to subscribe to warrants of HDFC Bank for an estimated amount of Rs 3,600 crore.

The qualified institutional buyers (QIBs) who have bought the nonconvertible debentures (NCDs) are also entitled to warrants, which can be converted into shares within three years at Rs 3,265 per share. Since investors will pay around Rs 275 per share upfront, the strike price of close to Rs 3,000 per share works out to a premium of roughly 30 per cent to the current market price of Rs 2,252.

That’s a fairly handsome premium and, should all warrants be converted, HDFC will be left with a capital of around Rs 3,000 crore. Moreover, the dilution of the equity base will be just 3.5 per cent.

HDFC’s June quarter numbers may have seemed subdued because loan growth was sluggish and the net interest income was up 7 per cent, with bulk of the earnings growth coming from capital gains. However, in the last six months, HDFC has sold loans worth Rs 5,600 crore to HDFC Bank; in the June quarter, the amount was Rs 1,300 crore. Adjusting for this, the loan growth was 20 per cent rather than the 13 per cent reported and the spreads were reasonable. The good news was that retail loan approvals were up 45 per cent in the June quarter over the March 2009 quarter, indicating a fairly sharp recovery in demand and resulting in a sequential increase in disbursements of 19 per cent. It’s true that the net interest margin (NIM) was subdued - spreads, at 2.19 per cent, came off a bit relative to the March 2009 quarter.

However, with high-cost debt of close to Rs 5,000 crore and priced at around Rs 10.5 per cent being rolled over in the next few months, spreads should improve. Besides, interest rates in the system have trended down, though there is some apprehension that long-bond yields will firm up towards the end of the year. Nevertheless, with impeccable asset quality, HDFC is attractively valued at a price to book value of just over 3 times for 200910, excluding subsidiaries.
source - BS