Built to cash

Warren Buffett's quote, "You only find out who is swimming naked when the tide goes out" perfectly describes the prevailing condition in the NBFC space. As the liquidity crunch continues, NBFCs saddled with bad debt are struggling to stay afloat. But one NBFC’s loss is another’s gain. While weaker financial companies are grappling with liquidity crisis, stronger ones such as HDFC have continued to report stellar numbers.

The AAA-rated company has not just been able to get funds at decent borrowing rates, but is also gaining market share from its beleaguered peers. Another strong performance in the last quarter reflects HDFC’s ability to thrive in a challenging environment. For Q1FY20, its net interest income grew 16% YoY to Rs.33.78 billion, while net profit increased 46% to Rs.32.03 billion. At the same time, loan book expanded 11.2% and asset quality slightly dropped. Gross NPA rose from 1.37% to 1.49%.

A solid show has led to a buoyant stock which is up 30% from its 52-week low post the IL&FS crisis. Earlier in July, the stock price hit an all-time high of Rs.2,358. MD Renu Sud Karnad has made the most of this rise selling shares worth Rs.580 million in 2019, so far. Overall, between 2016 and 2019, she has offloaded shares worth Rs.3.66 billion. Post the latest sale, her holding stands at 0.15%. 

Analysts remain optimistic about the housing finance major. Despite the stagnant real estate market, analysts state that HDFC reported stable operating metrics. “We believe well-run business models with strong balance sheets, market leadership and favourable cost advantage, such as HDFC, will emerge stronger, and earnings vulnerability will be limited,” mentions an recent Edelweiss Securities report.

The stock has long been an institutional darling and current mutual fund holding stands at 7.99%. Over the past 12 months, SBI MF, ICICI Prudential MF and UTI MF have increased their stake from 1.36%, 0.72% and 0.38% to 2.07%, 0.90% and 0.77%, respectively. Foreign portfolio investors (FPIs) have also raised their stake from 72.89% to 74.69%. Government Of Singapore is now the largest FPI in HDFC – having increased its stake from 2.05% to 3.78% over the same period.