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I have written this for HDFC lovers as well as the general public as a means of awareness.
Introduction
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Introduction
Primary business is the provision of housing finance to the people of Sri Lanka, which includes physical development of houses such as construction, renovation, extension, purchase of built houses and purchase of land for housing construction. Government owned 51% of the bank.
Innovative approach
Increasing the access of the non-banking segment to the Palm top mobile banking services was a key endeavour during the year 2014 and will be so in the future. While they made tremendous headway to reach 15,000 people daily through this service, they have started drawing plans to substantially increase their reach to groups of people in the country side, so that the operations from Palm top banking can benefit communities that don’t patronise formal banking. This mobile banking service will enable them to reach the uninitiated in their places of work, on farms, in factories, in workshops, at their homes, or even by the roadside
Future Outlook
The newly-introduced remittance product should provide robust returns, although remittances remain a strongly contested product platform. The Bank intends to provide easy payment of utility bills through the Palmtop banking services offered by th mobile sales teams. They believe this service will offer major relief for the beneficiaries. As a development bank with the aim of reaching out to the grassroots, they realize that advanced technology will provide the fastest route to achieve their aim and remain committed to providing technology-backed solutions for the customers.
Financial Analysis
The below table highlights the key financial KPIs for the bank for past years and a very gross level estimation for 2016 KPIs. Key observations are
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Interest expense have not grown compared to interest income resulting a positive impact on NII possibly low cost source of funds via rural community and farming community
[*]More than 15% growth in deposit base and loan book
[*]PE ratio continue to come down
[*]ROE shows a continued growth
[*]At current price level we could identify a positive valuation gap similar to the gap arisen in 2013 measured by the return on market value of equity
[/list]| Rs mn | 2013 | 2014 | 2015 | 2016 E |
| Interest income | 3,528 | 4,378 | 4,659 | 5,354 |
| Interest expense | 2,469 | 2,535 | 2,539 | 2,920 |
| NII margin | 30% | 42% | 46% | 45% |
| PAT | 158 | 375 | 515 | 592 |
| No of shares in issue (mn) | 65 | 65 | 65 | 65 |
| EPS | 2.44 | 5.80 | 7.96 | 9.15 |
| Market Price | 29.9 | 66.1 | 67.1 | 59.0 |
| Market Capitalization | 1,935 | 4,277 | 4,341 | 3,817 |
| PER | 12.2 | 11.4 | 8.4 | 6.4 |
| Loan Book | 19,701 | 23,357 | 26,688 | 31,062 |
| Deposit base | 18,902 | 24,479 | 28,593 | 35,167 |
| Equity | 2,575 | 2,886 | 3,372 | 3,964 |
| NAV | 39.8 | 44.6 | 52.1 | 61.3 |
| ROE | 6.1% | 13.0% | 15.3% | 14.9% |
| ROME | 8.2% | 8.8% | 11.9% | 15.5% |
| Valuation gap | 2.0% | -4.2% | -3.4% | 0.6% |
Share Price
As per the valuation gap it is evident that the current price levels should be moved upwards. Last two years the bank showed negative valuation gaps so 2016 also likely to produce the same given banks improved performance. I expect a NPAT in excess of Rs150mn for Q1 2016 but I think the interest expense will grow in this quarter at a higher rate than last year. In terms of statistics the share was trading @ Rs67 at the beginning of the year when ASPI was above 6800. So in terms of valuations as well as current market sentiments the share should move up.
Thanks
