HDFC is a major Housing finance provider in India with the highest market share for a long time. It also has a presence in banking (HDFCBank-21.03% stake), life (HDFC Life - 49.92% Stake) and general insurance (HDFCErgo - 49.98% stake), Asset management (HDFCAMC- 52.63% stake), venture capital, realty, etc. It was founded in 1977 with the support from India's business community, as the first specialized mortgage company in India and main company among HDFC group of companies. Hasmukhbhai Parekh played a key role in the foundation of this company which started with the main aim of solving the housing shortage in India and started rising steadily thereafter. In 2000, HDFC Asset Management Company launched its mutual fund schemes as HDFCAMC. In the same year, IRDA granted registration to HDFC Standard Life Insurance, as the first private sector life insurance company in India.
Their total sales during the year 2001 were 2300 Crore with a Net Profit of 500 crores. Today They are India’s 4th Largest company in terms of market capitalization with the landmark 5Lakh Cr & they are NO#1 Housing Finance company. This year we were expecting landmark sales of around 1.5 Lakh Cr which few listed companies have reached but due to low demand, this may be postponed to 2023. Profits this year even during this challenging year would be 23000 Cr despite huge provisions & claims from life insurance. We saw the sales & Profit growth of around 50X Hence, investment done 20 Years back should be today around 70X and investors might be receiving the same amount in dividends every year now which they would have invested 2 decades back. Huge wealth creation. This is also a company that could enter the elite club of India’s 1 lakh crore + profit-making companies till 2030-35. The last 2-3 years were bad for Housing Finance companies due to the default of some players, hence a liquidity crunch has been felt to companies, and they were still not out of that panic, and here was CORONA. This is the Covid affected Industry.
We have been recommending to Buy and add during every fall for a long time with the weightage of around 5% to this company. Yes, a wealth creator and happy to see many of you are holding it for a long time. Still today this is a priority company for long-term wealth.
In India, in January 2022, the third wave of Covid-19 resulted in a rise in infections, but with considerably less severity. While there had been some partial disruptions at certain locations, it did not result in any material impact on business. As at December 31, 2021, loans restructured under the RBI’s Resolution Framework for COVID-19 Related Stress (OTR 1.0 & 2.0) was equivalent to 1.34% of the loan book. Of the loans restructured, 64% are individual loans and 36% are non-individual loans. Of the total restructured loans, 34% is in respect of just one account. In January 2022, further recovery has been made in respect of this one account, and post this, the restructured book stands at 1.21% of the loan book. The cumulative Covid-19 provision as at December 31, 2021 stood at ₹ 1,187 crore, which is 9% of total provisions held.
During this 9M result we saw the de-growth of 2% due to highly affected loan and lifeinsurance business. Profits are good with the growth of 16%. After long 2 decades this is the 1s time if we see the sales growth in de-growth if -2% is seen even in annual results. We expect some recovery and 0% sales growth along with 16% profit growth this year which could take EPS to 118.
Improved Affordablity, Low Penetration, Government Incentives can boost Realty as well as Housing Finance Market.
The current Cost of Borrowing for HDFC was 5.81% while the Yield on Loan was 8.10% which gave them 2.29% spread.
Should expect 0% growth in sales this year but from next year again 15% CAGR growth could be seen for this decade.
Considering Current factors New buying again can be done during any fall in the whole range of 2326-1969 while our target near term this year should be 3200 & for the next 2-3 years should be 5800. Definitely a wealth Creator and place of 4% stake in portfolio should be given to this company.
All arms like Banking (HDFCBank), LifeInsurance (HDFCLIFE) and General Insurance (HDFCERGO) as well as AMC (HDFCAMC) are doing well. 73% Holding with FPI & 14% MF as well as Insurance companies holding.
