Housing Development Finance’s Profit Rises 10% on Lending

Housing Development Finance Corp., India’s largest mortgage lender, posted a 10 percent increase in second-quarter profit as loan growth of 19 percent helped the company weather surging borrowing costs.

Net income climbed to 12.7 billion rupees ($207 million), or 8.07 rupees a share, in the three months ended Sept. 30 from 11.5 billion rupees, or 7.53 rupees, a year earlier, the Mumbai-based lender said in an exchange filing today. That compared with the 12.5 billion-rupee median of 30 analyst estimates compiled by the Bloomberg.

Chief Executive Officer Keki Mistry has been able to grow loans at an average annual rate of more than 20 percent for the last five years as rising wealth among India’s burgeoning middle class boosted housing demand. Increased lending in the second quarter helped HDFC bear a surge in interbank borrowing costs caused by central bank measures to bolster the rupee.

“The lender is growing loans and keeping bad loans in check in a tough operating environment,” Vishal Narnolia, a Mumbai-based analyst at SMC Global Securities Ltd., said by phone today. “The company was nimble enough in managing funding costs so that spreads were protected even when the money-market rates surged.”

The S&P BSE India Bankex index, which tracks 13 lenders, has slumped 8.5 percent since July 15 when the Reserve Bank of India raised the cost at which it supplies cash to lenders. The measure was taken amid steps to check the rupee’s slide to a record low against the dollar.

The three-month interbank offered rate climbed 134 basis points since then to 9.55 percent today. The rate touched a four-year high of 11.59 percent on Sept. 4.

Funding Costs

Shares of HDFC, which isn’t a part of the Bankex, have outperformed the stock gauge with a 2 percent drop since July 15. The lender increased retail lending rates by 25 basis points on Aug. 23 to protect margins.

HDFC shares rose 0.2 percent to 821.15 rupees as of the close in Mumbai. They traded at about 808 rupees before today’s profit announcement.

“In the second quarter, we raised large amounts of money from banks to keep funding costs in check, with an option of prepaying it,” HDFC’s Mistry said in a televised media briefing today.

HDFC is the second-biggest debt issuer in India so far in 2013 with sales of 228 billion rupees ($3.7 billion), according to data compiled by Bloomberg. It sold 190 billion rupees of bonds in the same period last year. Indian companies sold 1.8 trillion rupees of local bonds this year, 12 percent less than a year earlier, the data show.

Branch Network

Loans at HDFC grew to 1.84 trillion rupees in the 12 months to Sept. 30 from 1.55 trillion rupees a year earlier, today’s exchange filing showed. The company has a market share of more than 15 percent of India’s home lending, according to SMC Global’s Narnolia.

HDFC holds a 22.7 percent stake in HDFC Bank Ltd., the nation’s most biggest by market value, exchange filings show. The mortgage finance company uses the bank’s branch network to source more than 25 percent of its new home loans, Mistry said in July.

“HDFC can sustain the rate of growth in loans over several decades as demand will keep rising in this under penetrated mortgage market,” Narnolia said. “They have the sector-specific skills and wide distribution network. What investors are watching out for is whether they will be able to maintain their lending spreads and keep the asset quality in check.”

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