>HDFC LIMITED: Major structural drivers of housing finance industry in India remain intact...

The major drivers of the housing finance industry in India as stated below remain intact:-


• Large population with a favourable demographic profile wherein 65% of the population is below 35 years
• Rising and high disposable income with high propensity to spend on assets like real estate for shelter as well as for investments
• Increasing urbanisation — currently only 31% of the population resides in urban areas
• Nuclearisation of families leading to higher demand for houses
• Due to demand-supply mismatch, the total housing shortage is ~88 million as on FY11, of which urban housing shortage is 28.9 million (as per Crisil Research)
• Tax incentives available in the form of deduction of interest and principal repayments, which results into lower effective interest rates borne by the borrower
• Improved affordability




■ Opportunity for mortgage finance industry remains huge….
There continues to remain huge potential for growth of the Indian housing finance industry. This is evident from the fact that mortgage as a percentage of India’s GDP at 9% remains one of the lowest in the world. The corresponding figure for developed countries like the US and UK stands at 81% and 88%, respectively, while for China it is at 20%.




■ India’s under-penetrated market to offer long-term growth visibility
Mortgages as a percentage of GDP in India are just 9% compared to developed countries where it is above 80% and China where it is 20%, providing long-term visibility for growth. We expect HDFC’s loan book to witness a healthy CAGR of 20% over FY12-14E to | 1995 billion.


■ Volatility in spreads contained
HDFC has been able to minimise deviation in reported spreads by maintaining it in the range of 2.15% to 2.35% in the past five years despite volatile interest rates owing to its flexible borrowing profile and stable asset-liability management. We expect FY13E calculated adjusted spreads to be stable at 2.9% as compared to 2.83% in FY11.


■ Seasoned loan portfolio, nil NNPA
HDFC’s assets are seasoned and have witnessed various cycles still maintaining resilience with nil NNPA and 0.8% GNPA as on FY11. Going forward, we expect the asset quality to remain strong with GNPA of 0.9% and nil NNPA for FY13E owing to its strong in-house recovery team.


To read full report: HDFC LIMITED
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