13 Aug, 2012, 05.08AM IST, MC Govardhana Rangan & Shilpy Sinha,ET Bureau Our numbers suggest there is no slowdown: V Srinivasa Rangan, Executive Director, HDFC*Housing Development Finance Corp has performed well consistently. Even during the bad times, it posted steady earnings growth. How long can it sustain? Will the current economic slowdown hurt the biggest mortgage lender? In an interview with ET, HDFC<http://economictimes.indiatimes.com/housing-development-finance-corporation-ltd/stocks/companyid-13640.cms>Executive Director V Srinivasa Rangan<http://economictimes.indiatimes.com/topic/V-Srinivasa-Rangan>says it is still rock solid and defends the accounting practices amid questions about it. Excerpts:*
*There is a belief that real estate prices never go down?* In a developing economy, there is fundamental demand. People are buying home for the first time or they are upgrading in terms of larger size and better location. Land prices are not controlled and have to be acquired at market price. There is limited supply of land, so prices are not likely to correct significantly. Major demand is for properties in the range of 50 lakh to 1 crore. So we are seeing demand from Noida, Greater Noida, Chennai, Pune and Gurgaon. *How is the economic slowdown affecting the mortgage business<http://economictimes.indiatimes.com/topic/mortgage-business> ?* Our numbers over the past many quarters, including the quarter ended June 30, suggest there is no slowdown. We have been targeting the affordable housing segment and that category is doing well. *How much of it is influenced by value?* Our average loan last year was 19.6 lakh; for the quarter ended June 30, 2012, it was 21.4 lakh. So, there is an element of property value increasing. This happens due to property price moving up, coupled with increased affordability, allowing customers to buy at better locations or larger-size apartments. *In the last 6-7 years, HDFC's loans to corporates have gone up.* We have been maintaining a ratio of 67% to 33%, with 67% being retail loans and 33% being non-retail. Within the 33% of non-retail, there are three segments. One is rental discounting, where you lend to a developer against the property that is already leased out and these are generally multinationals like IBM , Goldman Sachs<http://economictimes.indiatimes.com/topic/Goldman-Sachs>, etc, and this constitutes about 7%. The exposure is on the rentals and not on the project. Another 13% is to Indian corporates who want to buy their own office and also provide housing to their employees, especially the large manufacturing companies. Then, there is construction finance to developers, predominantly for residential category construction, which is another 13%. Here, we finance developers who need some working capital for construction before they can actually get money from customers. Loans to developers also help us acquire retail customers who buy in these residential projects. Our main business is retail and will always remain so. *Some analysts have questioned the accounting practices at HDFC and have termed it aggressive. A report by Macquarie said HDFC's accounting inflated profits.* The point that has been raised in the Macquarie report regarding the adjustment for zero coupon bonds is not new and has been clarified on several occasions by HDFC. It needs to be understood that HDFC is both a housing finance company and also a financial holding company. As a financial holding company, HDFC has been making investments in its subsidiaries and associates - bank, insurance companies and mutual fund. Under the Indian GAAP <http://economictimes.indiatimes.com/topic/GAAP>, the accounts of HDFC are presented on a standalone basis wherein only the dividends received from subsidiaries and associates are included as part of the income and its true share of profit in its subsidiaries and associates is not considered as part of HDFC's profits. HDFC has made its investments in subsidiaries and associates out of the amounts borrowed by way of zero coupon debentures and, therefore, the interest cost on such borrowings amounting to 485 crore during the year 2011-12 (net of tax) has been charged to securities premium account as per Section 78 of the Companies Act. For the year ended 2012, if the proportionate share of profits of HDFC in its subsidiaries and associates is considered, the profits of HDFC will be higher by 1,340 crore after reducing the dividends received from the subsidiaries and associates. Under these circumstances, if the aforesaid interest cost on zero coupon debentures is charged to profit and loss account, HDFC's profits would still be higher by 855 crore. -- CA. Rajesh Desai -- You received this message because you are subscribed to the Google Groups ""GLOBAL SPECULATORS"" group. To post to this group, send email to [email protected]. To unsubscribe from this group, send email to [email protected]. For more options, visit this group at http://groups.google.com/group/globalspeculators?hl=en.
