HDFC net up 19%; profitability may come under pressure

MUMBAI: Housing Development Finance Corp, the largest mortgage lender, said quarterly net profit rose 19% aided by loan demand from individuals and promised to maintain growth rates, but investors fear competition could pressure profitability.

Its net profit rose to Rs 1,151 crore in the quarter ended September 30, from Rs 970 crore a year ago. The company’s loans rose 31% jump from individual borrowers and overall it was 22% to Rs 1.15 lakh crore, which included loans to builders. An ET poll of five brokerages has estimated 17% growth in net profit.

“Immediately, HDFC has maintained growth and margins in spite of competitive pressure from banks,” said Kajal Gandhi, analyst with ICICI Securities. “But going forward there may be some rate cut by HDFC.”

Mortgage lending business is getting extremely competitive with state-run banks raising the competition bar with aggressing cut in lending rates and waiving off of processing fees. Also, the doing away with the pre-payment penalty has made customer switch easy. While banks with the benefit of lower cost of funds through strong deposit franchise could cut rates in a short span, HDFC is constrained by higher cost of funds to compete on rates.

But the management believes that rates alone does not determine the choice of borrowers and that other factors such as service standards also matter. The lender expects home prices to remain high and that high rates do not lower the demand for homes. “We did not see any slowdown in demand even when interest rates were high last year and first quarter of this year,” said Keki Mistry, vice-chairman and chief executive at HDFC. “If there is a rate cut, interest rates may fall by 50 bps by year end.”