Firm demand, new tax sops to work for HDFC

HDFC seems to be in a sweet spot these days. Most broking houses remain highly upbeat about the prospects of the largest housing finance company (HFC) in India.    

UBS, for one, has raised the bar for HDFC at Rs 1,050, beating the Credit Suisse call of Rs 1,045 per share in a recent report.

The reason is not far to seek. The demand for home loans remains perceptibly strong despite a slowdown elsewhere. Plus, the HFC has managed to stay ahead of the curve in the mortgage segment.

The company has grown loan in the individual segment by 25% on-year in 2012-13.

The momentum is expected to continue as efforts are underway to gain market share by going for alternative distribution channels.

“Additional one-time tax  benefit for first-time home buyers is also likely to support mortgage growth and HDFC’s average ticket size is ideal for the same,” said Vishal Goyal, Swati Madhabushi and Stephen Andrews, analysts at UBS Investment Research.

The individual home loan segment looks rosy too. Here, the international brokerage expects HDFC to notch up an impressive 22-25% growth in the current financial year.

Healthy loan margin cheers too, which provides plenty of upside to the stock. In 2012-13, HDFC registered loan spreads of 2.24% which was marginally lower than the previous year.  However, analysts expect them to improve by 12 bps in 2013-14. The enabling factors would be lower wholesale liability rates and a low-cost borrowing mix.

There’s also a feeling that HDFC would pass on the benefit of lower borrowing costs to customers in order to retain market share as competition escalates.