Will loan growth drag HDFC Q1 earnings?

Credit Suisse estimates that HDFC PAT may be lower at 12 percent on yearly basis. It says in a report that HDFC's operational performance will remain healthy with a continued traction in retail mortgage growth (20 percent YoY) and stable spreads.

Moneycontrol Bureau

Housing finance company HDFC will announce its April-June quarter results on July 21. According to Credit Suisse HFCs will continue strong loan growth trajectory with 18-20 percent growth annually. It feels that overall spreads should remain stable as bond issuances were limited in the initial part of the quarter due to the ambiguity surrounding the creation of disaster risk reduction (DRR) impacting borrowing costs slightly but issuances picked up in June.

However, the brokerage estimates HDFC PAT may be lower at 12 percent on yearly basis. It says in a report that HDFC's operational performance will remain healthy with a continued traction in retail mortgage growth (20 percent YoY) and stable spreads.

"We expect loan growth to remain low, in what could be the final stages of a prolonged downturn in the truck segment. Overall net interest income (NII) may stay flat year-on-year," it says in a report.

However, non-performing loans are expected to remain flat on a sequential basis. NPLs usually rise in the June quarter, but since the provisioning on new NPLs is low it is likely that credit costs stay flat QoQ. This would be the second quarter of renewed focus on collections by the company, and it would be interesting to see the results," it elaborates.

Meanwhile, CLSA is positive on HDFC first quarter performance. It expects income to grow at a healthy rate of 16 percent year-on-year led by growth in loans and stable spreads. Asset quality should remain strong and NPL levels should be near the existing range of 70-80 basis points of loans.

"Overall, this will drive 16 percent growth in pre-tax profits. However, the recent change in regulations on deferred tax liability can increase the effective tax rate for the company by about 500 bps, from 27 percent in 1QFY14 to 32 percent in 1QFY15, which will mean that reported net profit growth will be near 8-10 percent," it says.

On Friday, the stock closed at Rs 981.05, up Rs 7.60, or 0.78 percent on the BSE.