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In India where the per capita GDP is ~Rs 1.5 lakh, a common man aspires to buy a dream home costing him at least 15-20 times his annual income. But when necessities become luxuries, adversities can become blessings in disguise as well.

Something similar seems to have happened after the pandemic outbreak. A combination of various factors, such as falling interest rates, COVID-related financial stress amongst developers and the clear policy guidance, appears to have worked in favour of homebuyers this time.

Now that companies have started releasing their Q2FY21 numbers, robust performance of lenders in the mortgage market hints at a strong revival in housing sales. Take an example of HDFC Limited.

The company has stated in its press release that the disbursals in Q2FY21 were 95% of that in Q2FY20. However, the rebound has been strong over the last two months.

September and October have witnessed a firm recovery in loan approval as well as disbursals. On a Y-o-Y basis, approvals jumped 31% in September and 58% in October. Similarly, the disbursal amount went up 11% in September and 35% in October Y-o-Y.
The company also reported a healthy 21% deposit growth in the quarter gone by.

Pick the right numbers…

*Note: HDFC’s investments in HDFC Bank and Insurance businesses haven’t fetched it any dividend in the current fiscal, in, accordance with RBI’s and IRDA’s instructions pertaining to the dividend payment. Hence, PBT is adjusted for
dividend, profit on the sale of investments, fair value adjustments, net gains on loans assigned and ESOP expenses
(Source: Company data)

On the other hand, ICICI Bank in its press release mentioned that its housing loan disbursements during Q2FY21 surpassed the pre-COVID levels. September was the best month ever for housing loan disbursals. Many other lenders have also witnessed an increase in the mortgage loan demand.

This does not necessarily imply that real estate has become an attractive asset class for investors; rather, factors mentioned previously seem to be attracting genuine homebuyers.

Five parameters that decide the success of housing projects are:

  1. Track record of the developer
  2. Time left in completion
  3. Size of houses
  4. Price affordability
  5. Financing options and borrowing costs

This essentially means financially distressed developers who were sitting on a huge inventory of ‘right-sized’ housing units are likely to allow buyers to bargain under the present circumstances.

While addressing the National Real Estate Development Council (NAREDCO) during the initial days of outbreak of the pandemic, the Commerce Minister—Mr Piyush Goyal, had advised developers to reduce their inventory to deal with financial stress.  

His remarks were quite straightforward—If any of you feel that government will be able to finance in such a way that you will be able to hold longer and wait for the market to improve, the market is not improving in a hurry. Things are seriously stressed and your best bet is to sell.

Some state governments have incentivized buyers by allowing stamp duty concessions. For instance, the government in Maharashtra has reduced stamp duty by 3% for registrations in Q3FY21, and by 2% for  Q4FY21. In other words, homebuyers may save lakhs of Rupees just on account of stamp duty, depending on the property value, besides being able to bargain with developers.

Ministry of Housing and Urban Affairs (MOHUA) has been appealing other states too to reduce stamp duty on property deals.

Affordable push…

According the data published by MOHUA, Economically Weaker Sections (EWS) and Lower Income Group (LIG), i.e., individuals earning below Rs 6 lakh p.a., have been the biggest beneficiaries of Credit Linked Subsidiary Scheme (CLSS). They have collectively received 68% of Rs 27, 868 crore of interest rate subsidy under CLSS which has provided interest subvention to 1.08 crore houses so far under Pradhan Mantri Awas Yojana (PMAY).  

Moreover, As per the media reports, 24 states have already decided to participate in the Affordable Rental Housing Complexes (ARHC) scheme launched under PMAY-Urban. The government will offer financial as well as non-financial incentives under the ARHC scheme. This will include financial assistance through the Affordable Housing Fund, priority lending status, exemption in GST and income tax, additional FSI/FAR, single window approvals within 30 days, amongst others.

HDFC has been focusing on the affordable housing segment for growing its individual loan portfolio. It has participated aggressively in the government’s CLSS initiative.

In H1FY21, 35% of the loans (by volume) approved by HDFC have been for the affordable housing segment and 18% on value terms. The average home loan disbursal amount to EWS was Rs 10.7 lakh and that to LIG was Rs 18.2 lakh. The average size of an individual loan is Rs 26.7 lakh.

Housing sales numbers during Diwali and beyond would be crucial to track. If the festive season provides traction, the earnings momentum may sustain even in the coming quarters.

On this backdrop, stock price performance of HDFC post its earnings appears encouraging.

1947 moment for HDFC?

During the quarter gone by, HDFC raised Rs 10,000 crore through Qualified Institutional Placement (QIP). The issue was priced at Rs 1,760 per share. Moreover, it granted 3.84 crore shares at Rs 1,808.75 per share under HDFC Employees Stock Option Scheme-2020.

The Capital Adequacy Ratio (CAR) of HDFC Ltd. was 20.7% as on September 30, 2020 with Tier-1  capital being 19.5%, 195% of the minimum Tier-1 capital required as per the regulatory norms.

Kisme kitna hai dum

(Source: Ventura Research)

Back-of-the-envelope Sum of The Parts (SOTP) valuation suggests that if the corporation manages to contain delinquencies and report a healthy growth in the top line and NIMs in the coming quarters, the stock price performance would be crucial to watch. 

The recent rally has helped the stock come out of a consolidation pattern. As long as the stock maintains its higher-lows-higher-highs set up, the bulls may continue to make a beeline to HDFC Limited! 

You may also like to read: Q2FY21 earnings update: Building blocks of cement stocks



We, Ventura Securities Ltd, (SEBI Registration Number INH000001634) its Analysts & Associates with regard to blog article hereby solemnly declare & disclose that:

Consult your financial advisor before taking any investment decision.

We do not have any financial interest of any nature in the company. We do not individually or collectively hold 1% or more of the securities of the company. We do not have any other material conflicts of interest in the company. We do not act as a market maker in securities of the company. We do not have any directorships or other material relationships with the company. We do not have any personal interests in the securities of the company. We do not have any past significant relationships with the company such as Investment Banking or other advisory assignments or intermediary relationships. We are not responsible for the risk associated with the investment/disinvestment decision made on the basis of this blog article.



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