All cash, no mortgage

India’s biggest mortgage lender, HDFC, has managed to sail through these rough times. In Q2FY21, it reported net interest income of Rs.36.47 billion compared to Rs.30.21 billion in the previous year. Its post-tax profit stood at Rs.28.70 billion, lower than the year-ago figure of Rs.39.62 billion, but the company in its regulatory filing said that the numbers were not directly comparable as it had “not received any dividend from its investments in banks and insurance companies during the current financial year so far”.

Of late, the stock has been on a tear, climbing back towards its all-time high of Rs.2,500, which it hit on January 14. Having bounced back from the 52-week low of Rs.1,473 in March, it is currently trading at Rs.2,335 and insiders are cashing in. After the announcement of Q2 results on November 2, CEO Keki Mistry sold shares worth Rs.550 million through 5^th November to 18^th November. Overall insider selling in FY21 stands at Rs.4.2 billion, of which the largest chunk of Rs.680.3 million has been offloaded by Mistry. After the sale, Mistry’s holding has come down from 0.04% to 0.03%.

In its results update, the mortgage major mentioned, “Prevailing low interest rates, softer property prices, reduction in stamp duty in certain states and inherent strong demand for home loans bodes well for the housing finance sector.” Consequently, HDFC’s individual loan application receipts grew 12% and approvals grew 9% compared to the corresponding quarter of the previous year. And, this is what is keeping analysts optimistic, too.

For analysts at Nirmal Bang Institutional Equities, with a target price of Rs.2,483, the stock remains one of the top buys in the lending space due to its dominant market share and improving collection trends. “The overall collection efficiency for individual loans in September 2020 was 96.3% while the collection efficiency for non-moratorium individual loans was 99.5%,” states their report.

Meanwhile, analysts at ICICI Securities have revised their rating from ‘Buy’ to ‘Hold’, given the recent run-up in the stock. With a target price of Rs.2,200, the report states, “Faster reversion to pre-Covid level in terms of disbursement to individual loans is seen propelling balance sheet growth.”

Mutual funds and FIIs have marginally reduced their stake from 9.44% and 70.17% to 9.39% and 70%, respectively between June and September. During its Rs.100 billion QIP in August, 13.37% of the shares were allotted to Government of Singapore and 5.54% to Invesco Oppenheimer Developing Markets Fund, who now hold 3.20% and 3.60%, respectively. LIC has also upped its holding from 5.39% in June to 5.52% in September.