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HDFC Q3 preview: Brokerages expect steep decline in profit on elevated provisions

Housing finance major HDFC is likely to report a steep decline in its profit due to elevated provisions, lower capital gains & dividend income, and sharp fall in pre-provision operating profit. Likely subdued growth in NII may also hit bottomline.

According to brokerage houses, profitability is expected to decline by around 60 percent in Q3 compared to year-ago period and by over 10 percent, sequentially.

“Lower capital gains and dividend income (Rs 110 crore in Q3FY19 versus Rs 3,800 crore in Q3FY18) will likely lead to decline in net profit,” Kotak Securities said.

Net interest income, the difference between earned and interest expended, may also see negative growth despite around 15-18 percent loan growth YoY with slight pressure in margin.

“We expect HDFC to deliver 15 percent YoY loan growth, lower than 17 percent in Q2FY19. An increase in incremental funding cost will lead to compression in calculated NIM to 2.48 percent in Q3FY19 from 2.57 percent in Q2FY19,” Kotak Securities said.

Emkay expects HDFC’s loan growth to remain healthy at around 18 percent backed by individual loans as well as developer funding. “NIM pressure to remain relatively limited.”

“Disbursement growth is likely to be strong (taking advantage of weak competition) and we anticipate higher teens individual loan growth,” Edelweiss Securities said, spreads are likely to be stable-to-marginally higher as company has hiked lending rates.

Prabhudas Lilladher expects spreads to remain steady. Asset quality is likely to improve sequentially as gross non-performing assets are expected to fall at 1 percent, said the brokerage.

According to brokerages, provisions are expected to remain elevated on year basis, but may fall in Q3 sequentially.

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