Friday, September 21, 2007

This Week’s Hot Stock: HDFC

Introduction:

Housing Development Finance Corporation (HDFC) was founded by Hasmukhbhai T. Parekh, who was a General Manager at Industrial Credit and Investment Corporation of India (ICICI). HDFC was incorporated in 1977 with the primary objective of providing long term home loans. Now HDFC has diversified into banking, general/life insurance, mutual funds etc.

Business Overview:

HDFC provides loans for resident Indians and NRI’s for purchase of house, flat or bungalow from developers as well as for self constructed houses. Several options are available to the customers, including:

  • Maximum amount (upto 85% of cost of property)
  • Maximum term (20 years)
  • Fixed interest rate / adjustable interest rates

For repayment of loans, HDFC provides following options:

  • Flexible loan instalment plans
  • Trench based EMI (i.e. customers can fix the installments they wish to pay till the time the property is ready for possession)
  • Accelerated Repayment Scheme (i.e. increasing the EMI and replaying faster)

HDFC also provides home improvement loans for external repairs, tiles fixing/flooring, painting, plumbing, waterproofing etc. For adding space or additional rooms, it provides home extension loans. Other type of loans include short term bridging loan(selling old property to buy a new/bigger home), land purchase loan, loans to professionals for non residential purpose (such as clinic, office etc.) and mortgage loans for marriage/education/medical expenses.

HDFC offers two kinds of deposits, at fixed and variable interest rates and it has been awarded “AAA” rating for its deposits from both CRISIL and ICRA for the twelfth consecutive year, representing highest safety as regards timely payment of principal and interest. Several plans are available, including monthly/annual income, cumulative/non-cumulative and senior citizen deposits.

HDFC Realty, the real estate property division of HDFC, helps customers in finding opportunties for buying/selling/leasing/renting of residential property and commercial plot/land across various cities in India. HDFC Realty is managed by Home Loan Services India Private Limited, a wholly owned subsidiary of HDFC.

HDFC has promoted HDFC Bank, which offers personal, corporate and forex banking solutions.

HDFC Mutual Fund has wide range of schemes to suit the investors – equity funds, debt funds, balanced funds and liquid funds.

HDFC Standard Life Insurance meets the insurance needs of individuals as well as corporates and offers insurance, gratuity, leave encashment and superannuation products.

HDFC has joined hands with Barclays of UK to promote Intelenet, a BPO company that provides IT solutions to banking, finance, retail, telecom etc.

Financial Performance:

HDFC has registered consistent growth in net profits and EPS in the last five financial years. Its net profits have more than doubled between 2002 and 2007 from Rs.690 crores to Rs.1482 crores and EPS has surged from 28.3 to 69.5.

Stock Market Performance:

HDFC is a constituent of Sensex (Scrip Code: 500010, Free float market capitalization: Rs.57,269 crores; weightage: 5.23%) and Nifty (Ticker: HDFC, FFMC: Rs.53,050 crores; weightage: 2.27%). HDFC Bank, promoted by HDFC, is listed at New York Stock Exchange (NYSE) and traded on ticker HDB.

Foreign Institutional Investors (FII’s) have a huge stake in HDFC (68.31%). Foreign Financial Institutions have 10.4% stake in the company.

The face value of the stock was split in the year 1999 (from Rs.100 to Rs.10) and HDFC issued 1:1 bonus in 2002.

At NSE, it is also traded in Futures & Options segment with a lot size of 150 shares.

Let us now discuss the short / medium / and long term outlook for the stock.

Short term outlook:

The daily chart of the stock is displayed above. Its short term resistance at 2100 was broken on September 6. It has gained about 12% after the breakout. But, it has made a high of 2424 from a low of 1786 or about 36% without any significant correction. Short term investors need to take note of this and consider 2100 as a support for entering the stock. It is also close to 50% retrcement level at 2106. 2031 may be considered as another major support.

So, short term investors may wait for corrective declines.

Medium term outlook:

There are no major revesal signs in the weekly chart of the stock. Medium term investors may continue to hold the stock. When calculated from a low of 962 the technical target for the stock works out to 2519. Support exists at 1828. Since the stock has already touched a high of 2424, it may not be wise to enter at this stage; however, if a sharp correction occurs, entry may be considered at support levels.

Long term outlook:

We don’t see any reversal signs in the monthly chart either. After adjusting for split/bonus, the stock has appreciated 12.72 times between September 1997 and now. Long term investors may book partial profits. But entry may be avoided at the current levels.

Conclusion:

  • Short term investors may enter the stock on declines at support levels
  • Medium term investors may consider booking profits
  • Long term investors may continue to hold/book partial profits