HDFC a better play than its peers: Sharekhan

'Q4 stable for the NBFC on asset quality front'

Headline earnings have been largely in line with expectations, says Lalitabh Srivastava, AVP-Research.

The PAT is not directly comparable due to the other income in Q4 FY19 but how are you looking at the headline earnings?
Headline earnings are largely in line with expectations. It was known that there will be no dividend income this quarter. Also, there was stake sale benefit in earlier quarters which was not there in this one. All in all, the numbers are largely in line; notably, they have taken around Rs 6,000 crores COVID-19 provisions. They are into the mortgages business and that is supposed to be slightly more insulated; so the commentary will be what we will be looking at.

The total individual loan approvals have grown nearly 12% in value terms and the individual loans comprise nearly 76% of the total AUM. How you are looking at some of these details? NII growth has been fairly encouraging in this environment at 14%; do you think that they are likely to continue to scale?
It is difficult to say that because the trend can be subdued in the medium-term, mainly because of the lockdown you would see much lower house sales and consequently much lesser disbursement as well. So, incremental loan growth might be taking a flight of backseat in the medium-term but we believe that the portfolio of mortgage finance companies especially HDFC, which has a very large salaried customer base, is a better play quality-wise compared to some of the other peers.

What exactly it is that you would be looking out for in terms of the kind of commentary that we could potentially get from the management? Is it the NPA trends in retail and developer loans, the outlook on growth, customer moratorium, etc?
All of these things, apart from that the percentage of loans, are currently under moratorium. What is the management understanding and sense on the outlook on the loan book behaviour going forward is what we are looking for. Apart from that, the developer loan segment and how that is going to behave going forward is being would be watched out for.

What about the asset quality -- the GNPAs at 1.99%?
See asset quality is something that is a key monitorable for most of the NBFCs and banking companies. Gross NPAs last quarter were around 2.25% and they have become down this quarter. Now some portion of that would be also because of the moratorium benefits. So one would like to check out what is the movement there but definitely asset quality-wise so far Q4 seems to be fairly stable for the NBFC.

What is the sense that you are getting on their overall outlook on provisions?
Usually what the management does is that it creates a buffer during an adverse scenario. The management stance has been fairly conservative on this front. What will be notable at this point is that you know the percentage of loans that are under a moratorium for HDFC; how that number is moving because that is also a very dynamic number. Secondly, also it will be interesting to know what is the management commentary on the client segment who have opted for moratorium and what is their reason and what is their outlook.