HDFC has once again surpassed analysts expectations in its June 2007 quarter results. If there were concerns of a slowdown in home buying owing to expensive real estate and high interest rates, then with a 29 per cent y-o-y rise in both loan approvals and sanctions, HDFC was not affected. Even its non-performing loans are lower compared with the June 2006 quarter. The fully diluted earnings grew by 24 per cent y-o-y in Q1 FY08.

Its loan portfolio increased by 23 per cent y-o-y in Q1 FY08. HDFC was able to improve its net interest margin by 5 basis points sequentially and 8 basis points y-o-y, with net interest income growing 40.7 per cent. This indicates that HDFC has been able to pass on higher interest costs to borrowers. If interest costs have gone up 55 per cent y-o-y, that s because of growth in business as well as higher interest rates.

With its preferential allotment to Carlyle and Citigroup, HDFC has collected Rs 3100 crore to fund its investments in HDFC Bank and HDFC Standard Life Insurance, which is book accretive. While banks are going slow on home loans, it is an opportunity for HDFC to improve its market share.

In FY07, analysts say HDFC s market share improved by 250 basis points y-o-y to 25.2 per cent. The outlook on interest rates for the short term is benign and HDFC should continue growing its loan book by over 25 per cent, say analysts. After adjusting for its holdings in its subsidiaries and associate companies, HDFC trades at less than 4 times its estimated FY09 book value, which is attractive.