Housing Development Finance Corpn. Ltd.
Disclaimer: It is an assignment of learner. Only for demonstrating the method. E&OE.
Authors
Quarterly Results
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| Sep-07 | Dec-07 | Mar-08 | Jun-08 | Sep-08 | Dec-08 |
| Total Income | 2205.75 | 2275.66 | 2537.91 | 2318.62 | 2620.59 | 2924.84 |
| Operating Income | 1888.6 | 2046.93 | 2309.67 | 2313.48 | 2615.1 | 2917.77 |
| Other Income | 317.15 | 228.73 | 228.24 | 5.14 | 5.49 | 7.07 |
| Extra-ordinary Income | 0 | 0 | 0 | 0 | 0 | 0 |
| Clnge in stock | 0 | 0 | 0 | 0 | 0 | 0 |
| Expenditure | 1802.31 | 1626.73 | 1769.79 | 1850.51 | 2086.36 | 2378.01 |
| Personnel cost | 31.89 | 26.86 | 31.03 | 38.05 | 35.38 | 37.99 |
| Other expenses | 50.42 | 47.25 | 35.35 | 58.69 | 63.69 | 58.03 |
| Extra-ordinary exp. | 242.95 | 0 | 15.63 | 0 | 0 | 0 |
| Interest | 1223.75 | 1315.96 | 1359.79 | 1568.35 | 1757.26 | 2042.7 |
| Depreciation | 4 | 4.41 | 4.49 | 3.67 | 4.28 | 4.54 |
| PBP | 403.44 | 648.93 | 768.12 | 468.11 | 534.23 | 546.83 |
| Prov. & cont. | 0 | 0 | 0 | 0 | 0 | 0 |
| PBT | 652.74 | 881.18 | 1091.62 | 649.86 | 759.98 | 781.58 |
| Tax | 249.3 | 232.25 | 323.5 | 181.75 | 225.75 | 234.75 |
| Fringe Benefit tax | 0 | 0 | 0 | 0 | 0 | 0 |
| Deferred tax debit | 0 | 0 | 0 | 0 | 0 | 0 |
| Less def. tax credit | 0 | 0 | 0 | 0 | 0 | 0 |
| PAT | 403.44 | 648.93 | 768.12 | 468.11 | 534.23 | 546.83 |
| Adjusted EPS (Rs.) | 70.879392 | 78.778978 | 85.771979 | 89.623112 | 85.670231 | 82.015588 |
| Growth (%) |
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| Operating income | 46.752349 | 47.725583 | 42.780223 | 28.201889 | 38.467648 | 42.543712 |
| Total expenses | 65.621525 | 47.584011 | 49.510864 | 26.957697 | 15.76033 | 46.183448 |
| Interest | 33.949584 | 38.991751 | 35.29441 | 25.957724 | 43.596323 | 55.225083 |
| PBP | 9.6244769 | 82.545219 | 39.645487 | 25.562619 | 32.418699 | -15.733592 |
| PBT | 38.848355 | 98.098107 | 61.453588 | 28.6826 | 16.429206 | -11.303025 |
| PAT | 9.6244769 | 82.545219 | 39.645487 | 25.562619 | 32.418699 | -15.733592 |
| Profitability (%) |
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| PBP/Total income | 18.290377 | 28.516123 | 30.265849 | 20.189164 | 20.385867 | 18.696065 |
| PBT/Total income | 29.592656 | 38.721953 | 43.012558 | 28.027879 | 29.00034 | 26.722145 |
| PAT/Total income | 18.290377 | 28.516123 | 30.265849 | 20.189164 | 20.385867 | 18.696065 |
| PBP netof PE&OI/OpInc | 34.225882 | 31.702599 | 33.933419 | 20.23402 | 20.428664 | 18.741368 |
| PBT netof PE&OI/OpInc | 30.633273 | 31.874563 | 38.057818 | 27.867974 | 28.851287 | 26.544587 |
| PAT netof PE&OI/OpInc | 17.433019 | 20.528303 | 24.051488 | 20.011844 | 20.21873 | 18.499059 |
Source: CMIE Prowess
Half Yearly Results
| PARTICULARS | Quarter ended | Quarter ended | Half Year ended 30.9.2008 | Half Year ended 30.9.2007 | Year ended 31.3.2008 | |||
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| Rupees in crores | |||||||
| Income from Operations :
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| Total Income (excluding Other Income and Profit on Sale of Investments - Subsidiaries and Associates) |
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| Expenditure :
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| Total Expenditure | 1,860.61 | 1,310.06 | 3,529.37 | 2,633.68 | 5,458.82 | |||
| Profit Before Other Income and Exceptional Items | 754.49 | 578.54 | 1,399.21 | 1,080.11 | 2,717.53 | |||
| Other Income | 5.49 | 3.90 | 10.63 | 7.34 | 19.71 | |||
| Profit After Other Income and Before Exceptional Items | 759.98 | 582.44 | 1,409.84 | 1,087.45 | 2.737.24 | |||
| Exceptional Items | 0.00 | 313.25 | 0.00 | 313.25 | 636.26 | |||
| Profit Before Tax | 759.98 | 895.69 | 1,409.84 | 1,400.70 | 3,373.50 | |||
| Tax Expense | 225.75 | 249.30 | 407.50 | 381.50 | 937.25 | |||
| Net Profit After Tax [*] | 534.23 | 646.39 | 1,002.34 | 1,019.20 | 2,436.25 | |||
| Earnings per Share - (rs)
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| Paid-up Equity Share Capital | 284.23 | 271.55 | 284.23 | 271.55 | 284.04 | |||
| Reserves as at March 31, 2008 |
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| 11,663.31 | |||
| Public Shareholding :
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| Net Profit After Tax as above | 534.23 | 646.39 | 1,002.34 | 1,019.20 | 2,436.25 |
| Less : Exceptional Profit – Net of Tax | 0.00 | 242.95 | 0.00 | 242.95 | 493.48 |
| Net Profit After Tax excluding Exceptional Items | 534.23 | 403.44 | 1,002.34 | 776.25 | 1,942.77 |
| Earnings per Share - (rs)
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Notes :
- Approvals during the six months ended September 30, 2008 aggregated to Rs 24,180 crores as compared to Rs 18,948 crores during the corresponding period in the previous year – representing an increase of 28%. Disbursements during this period amounted to Rs 17,788 crores as compared to Rs 14,275 crores during the corresponding period in the previous year – representing an increase of 25%.
- Other Operating Income for the six months ended September 30, 2008 includes Dividend Income of Rs 109.08 crores (Previous Year Rs 54.83 crores), Profit on Sale of Investments rs 22.56 crores (Previous Year Rs 27.30 crores) and Surplus on deployment of funds in Cash Management Schemes of Mutual Funds of rs 48.10 crores (Previous Year Rs 45.97 crores).
- Exceptional items Rs Nil (Previous Year Rs 313.25 crores, net of tax Rs 242.95 crores related to profit on sale of the entire shareholding in Intelenet Global Services Private Limited, which was earlier an Associate Company of the Corporation).
- The Corporation’s main business is to provide loans for the purchase or construction of residential houses. All other activities of the Corporation revolve around the main business. As such, there are no separate reportable segments, for the Corporation, as per the Accounting Standard on Segment Reporting (AS 17), notified by the Companies (Accounting Standards) Rules, 2006.
- During the quarter ended September 30, 2008, the Corporation has allotted 21,585 shares of rs 10 each pursuant to the exercise of stock options by certain employees.
- There was no investor complaint that was unresolved as of July 1, 2008. During the quarter ended September 30, 2008, the Corporation received six investor complaints, all of which were resolved. As such there was no unresolved investor complaint at the end of the said quarter.
- Figures for the previous period have been regrouped wherever necessary, in order to make them comparable.
Source: http://www.hdfc.com/others/popup/news/hdfc_fin_result_sep_30_08.htm
Important News
HDFC Drops Interest Rates for Existing and New Customers
Source: http://www.hdfc.com/others/popup/news/rplr_19122008.htm
Highlights:
· Retail Prime Lending Rate (RPLR) reduced by 50 bps
· Interest on Floating rate Home Loans up to 20 lacs for New Customers dropped to 10.25%
· Interest on Floating rate Home Loans above 20 lacs for New Customers dropped to 11.25%
· Interest Rates on Deposits dropped by 50 bps across all maturities.
CAPITAL ADEQUACY RATIO
HDFC’s capital adequacy ratio stood at 15.2% of the risk weighted assets, as against the minimum requirement of 12%. Tier 1 capital adequacy was 14.1% as against a minimum requirement of 6%.
DISTRIBUTION NETWORK
HDFC’s distribution network spans 262 outlets, which include 52 offices of HDFC’s distribution company, HDFC Sales Private Limited (HSPL). In addition, HDFC covers over 90 locations through its outreach programmes. Distribution channels form an integral part of the distribution network with home loans being distributed through HSPL, HDFC Bank Limited and other third party direct selling associates.
To cater to non-resident Indians, HDFC has offices in London and Dubai and service associates in Kuwait, Oman, Qatar, Sharjah, Abu Dhabi, Al Khobar, Jeddah and Riyadh in Saudi Arabia.
Awards and Appreciation
9.1.2009
HDFC one of the most trusted company in India - Mint poll - Mint 09/01/09
Source: http://www.hdfc.com/others/popup/news/hdfc_09012009.htm
20 fund managers, stock brokers and stock market analysts participated in a snap poll done by Mint (8.1.2009) , in the aftermath of the accounting fraud at Satyam Computer Services Ltd.
1.2.2008
HDFC has been selected as the 'Top Indian Company in FIs / NBFCs / Financial Services sector'
For the 2nd year in succession HDFC has been selected as the 'Top Indian Company in FIs / NBFCs / Financial Services sector' for the Dun & Bradstreet - American Express Corporate Awards 2007.
Source: http://www.hdfc.com/others/popup/news/dun_n_bradstreet.htm
Background Information (Updated January 2009)
Promoters
Major Shareholders
Auditors Deloitte, Haskins & Sells (2008-09)
Board of Directors
Chairman Deepak S Parekh
Vice Chairman Keshub Mahindra
Director Shirish B Patel
Director B S Mehta
Company Background
FII's hold more than 60 % of HDFC's equity, Indian Public holds less than 15 % and the rest is being held by banks and others in January 2009.
Analysis
Graham-Rao Method
It is a method of systematic fundamental analysis of the stock of a company by conservative investors based on several parameters. It is useful to identify equity stocks for buy and hold investment. To know more about it, Please visit the following link:http://knol.google.com/k/narayana-rao-kvss/fundamental-analysis-grahamrao-method/2utb2lsm2k7a/7#
Qualitative Criteria:
1. Adequate Size of the Enterprise: The Company must have a good sales figure and a strong financial condition. The annual sales of the company should be 100 Cr INR for Indian Companies.
2. Dividend Record: The Company should have paid dividend continuously in the last 10 year.
3. Earnings Stability: The Company should have earned profits for the last 10 years.
4. Earnings Growth: The Company should have atleast 10% EPS growth in the last seven years
5. A Sufficiently Strong Financial Condition: The Company should have current assets at least twice current liabilities, i.e. the current ratio of the company should be 2:1.
6. Debt-Equity ratio: The Debt-Equity ratio should not be greater than one.
Dividend History
| Mar 1999 | 85 | Final | 24-May-99 |
| Mar 2000 | 100 | Interim 1 | 17-Apr-00 |
| Mar 2000 | 90 | Interim 2 |
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| Mar 2001 | 125 | Final | 11-Jun-01 |
| Mar 2002 | 100 | Special | 3-Jul-02 |
| Mar 2002 | 150 | Final | 3-Jul-02 |
| Mar 2003 | 110 | Final | 1-Jul-03 |
| Mar 2004 | 135 | Final | 2-Jul-04 |
| Mar 2005 | 170 | Final | 29-Jun-05 |
| Mar 2006 | 200 | Final | 30-Jun-06 |
| Mar 2007 | 220 | Final | 12-Jun-07 |
| Mar 2008 | 250 | Final | 27-Jun-08 |
Stock Valuation
| Year | Equity Capital | Face Value | PAT | Outstanding shares | EPS on accounting year end | Adjustment Factor | Adjusted EPS |
| Rs. Crore | Rs. | Rs. Crore | Nos. | Rs. | Rs. | ||
| 1999 | 119 | 100 | 333.9 | 11911400 | 280.32 | 0.05 | 14.02 |
| 2000 | 119 | 10 | 401.81 | 119114000 | 33.73 | 0.50 | 16.87 |
| 2001 | 120 | 10 | 473.65 | 120086798 | 39.44 | 0.50 | 19.72 |
| 2002 | 122 | 10 | 580.01 | 121713941 | 47.65 | 0.50 | 23.83 |
| 2003 | 244 | 10 | 690.29 | 244414492 | 28.24 | 1.00 | 28.24 |
| 2004 | 247 | 10 | 851.78 | 246617121 | 34.54 | 1.00 | 34.54 |
| 2005 | 249 | 10 | 1036.59 | 249120732 | 41.61 | 1.00 | 41.61 |
| 2006 | 250 | 10 | 1257.3 | 249563933 | 50.38 | 1.00 | 50.38 |
| 2007 | 253 | 10 | 1570.38 | 253006607 | 62.07 | 1.00 | 62.07 |
| 2008 | 284 | 10 | 2436.25 | 284037985 | 85.77 | 1.00 | 85.77 |
| Seven year Average EPS | 46.63 |
| Ratio to initial EPS | 1.96 |
| Growth rate (%) | 22 |
| Fair P/E | 20 |
| Fair Price | 932.69 |
Reasons for Adjustment in EPS
| Bonus Issue: | Dec 2002 | 1 : 1 |
| Share Split | Sep 1999 | 1 : 10 |
Current Ratio: 22.90
Annual Sales: 8,176.35 Crores
Dividend Discount Model
Calculated growth rate in EPS using 7 year adjusted EPS figures:
| Year | Adjusted EPS |
| (Rs.) | |
| 1999 | 14.02 |
| 2000 | 16.87 |
| 2001 | 19.72 |
| 2002 | 23.83 |
| 2003 | 28.24 |
| 2004 | 34.54 |
| 2005 | 41.61 |
| 2006 | 50.38 |
| 2007 | 62.07 |
| 2008 | 85.77 |
Source: CMIE-Prowess
EPS Growth rate comes out to be: 22%
Calculation for growth rate in Dividend per share using 7 year Divident figures:
| Period | % Dividend | Dividend | Face Value | Adjusted Dividend |
| Mar 1999 | 85 | 8.50 | 10 | 0.85 |
| Mar 2000* | 190 | 19.00 | 1 | 19.0 |
| Mar 2001 | 125 | 12.50 | 1 | 12.5 |
| Mar 2002* | 250 | 25.00 | 1 | 25.0 |
| Mar 2003 | 110 | 11.00 | 1 | 11.0 |
| Mar 2004 | 135 | 13.50 | 1 | 13.5 |
| Mar 2005 | 170 | 17.00 | 1 | 17.0 |
| Mar 2006 | 200 | 20.00 | 1 | 20.0 |
| Mar 2007 | 220 | 22.00 | 1 | 22.0 |
| Mar 2008 | 250 | 25.00 | 1 | 25.0 |
*--> Special Dividend
Source: CMIE-Prowess
Divident Growth rate (2001-08) comes out to be: 12.5%
Growth rate in earnings was 22%.
Average of growth rate: Av(22,12.5) = 17.25%
Assuming that this growth rate will continue for next 6 years.(1 to 6 years from the latest year for which DPS is available)
Growth for the next 6 years (7 to 12) will be 50% of 18.08% = 9 %
Growth for further 6 years (13 to 18) will be 50% of 9% = 4.5%
Reducing it till we reach terminal growth rate assumed for the company, which is 4% for companies older than 10years.
Mature Growth Rate
Make a ranking of the companies in the industry to which the company belongs. Make three groups. First five, next five and the rest.
If the company is in the first five, Mature growth rate = 6%
If the company is in the next five, mature growth rare = 5%
If the company is in the third group, mature growth rate = 4%
Required Rate of Return
Risk free rate of return
364-Tbill rate is 4.60% on 30.1.2009
Source: http://stcipd.com/UserFiles/File/WeeklyReportFeb02.pdf
Risk Premium
The risk premium is to be taken as 10%. For India it 8.75% on the basis of geometric average or mean. (Reference: IIM Ahmedabad Working paper number WP.No.2006-06-04, “A First Cut Estimate of Equity Risk Premium in India”, J R Varma and S K Barua).
Because at the present time (February 2009) risk aversion is high, using 10% as the risk premium demanded by the investor is appropriate.
Adding Risk free rate and risk premium give a required rate of return of 14.6% for the market.
For individual companies, Required rate of return will e RFR + Beta*Risk Premium, that is 4.6% + Beta*10%
Beta for HDFC = 0.132
Therefore, Required rate of return = 4.6 + 0.98 * 10 = 14.4%
Valuation:
The value of a share of common stock is the present value of all future dividends as:
Where:
Vj = value of common stock j
Dt = dividend during time period t
k = required rate of return on stock j
Therefore for 10 year divident data and required discount rates above, equity valuation of HDFC Ltd. according to DDM comes out to be: Rs. 956.30
Comments
Visited
7.8.2009
No reply to the earlier comment
Hello Sir,
I have made the required changes.
Regards,
Varun Singh
When you are giving an adjusted series, you are giving with respect to the current figure. The current figure is FV of 1, Hence you have to divide the DPS by 10 and show the adjusted value.
Narayana Rao - 10 Aug 2009Hello Sir,
In 1999, the face value was 10, so it does not have to be adjusted.
the * signifies special dividend, I forgot to mention there, I have done that now.
As for the figures used for calculation for growth, I have used 2001 figure as base year.
Regards,
Varun
Yes. you might have.
But still DPs figure of 1999 is not adjusted.
2002 figure is 2.5. You put an asterik on it.What figures did you use for growth rate calculation?
Hello Sir,
I have made the changes earlier and replied by mail.
You can refer to my mail dated Jul 4, 2009, Subject: Assignment Updated.
Regards,
Varun Singh
Have you done adjustments to dividend per share figures
You have to adjust DPS figures just as you have adjusted EPS figures. have you done it?
Also you have not shown the full Graham-Rao analysis for the company. You gave only valuation part.
Some errors in the period titles of quarterly results
There is an error in the period title of quarterly results
Narayana Rao - 06 May 2009
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