Mistry is very keen on the IPO of HDFC Standard Life. But he did not disclose any information on valuations.
Talking to CNBC-TV18, Keki Mistry, VC & CEO, HDFC , says there are no plans to list the general insurance business. Ergo, its partner in the general insurance business has proposed to increase their stake from 49 percent to 26 percent. This transaction, he says, is likely to happen soon.
Mistry remains keen on the IPO of HDFC Standard Life. But he did not disclose any information on valuations. HDFC recently sold nine percent of its stake in HDFC Life to Standard Life increasing their share to 35 percent from 26 percent. Soon after this, there was a resolution passed by the board for an upto 10 percent dilution for the IPO.
Talking about the housing sector, Mistry said the demand for housing in India will always remain strong. According to him, HDFC gets the highest number of housing loans from Mumbai. Delhi, NCR and Pune are other prominent cities where they get a chunk of loan applications from. He stresses on the fact that housing is especially flourishing in the outskirts of these cities.
The cost of funds for HDFC have also gradually come down since November-December. When asked about any chances of cutting rates, Mistry said the possibility of cutting rates will be reviewed.
Below is the verbatim transcript of Keki Mistry’s interview with CNBC-TV18's Kevin Lee.
Q: What is the demand outlook for housing in big cities in India?
A: Fundamentally, the demand for housing in India will always remain strong and that will be for a variety of reasons. In the current year well National Capital Region (NCR) used to be very high at one time; NCR has slipped from number one to number two. Mumbai is the highest at this point of time but it’s not Mumbai proper, our average loan amount in Mumbai is Rs 40 lakh, our average loan amount in Mumbai would be about Rs 65-70 lakh. Now you tell me for Rs 65-70 lakh what kind of property will you get in Central Mumbai or South Mumbai nothing, so it’s all in the distinct outskirts of the city. Pune is doing very well; not Delhi NCR is also reasonably good; Chennai has slowed down a little bit in the last one or two months but that’s more because of the floods that were there, but otherwise Chennai has been growing very well. Bangalore has been reasonably good, but it’s all this is in the outskirts of the big cities.
Q: So the Central Government is putting a lot of focus on affordable housing so to that extent have you seen the amounts of loan reflect that or more people who are looking in the affordable segment are taking loans from HDFC.
A: See, our average loan amount for new loans we have given up to December, I am just giving you numbers up to December and not March is about Rs 25 lakh average all India with Mumbai probably the highest; Mumbai and NCR being the highest. Mumbai average is Rs 40 lakh. So the average loan amount tends to increase by roughly about 5-8 percent a year and that’s typically what we have seen even in the current year.
Q: So your Board has given the approval for the listing of HDFC Life 10 percent, so what is the timeline when can we expect this to happen?
A: So there were two events which needed to happen before we do took up the issue, the first event was that obviously the foreign ownership limits in Insurance had to increase which happened last year. The second event which was important is Standard Life has been a partner for years and years and right from the beginning and they had the option to increase their stake to 49 percent. They had agreed to restrict their shareholding to 35 percent, so the difference between 35 percent and the original holding of 26 percent, the 9 percent shares we had to sell to them and that transaction was subject to regulatory approvals which have all now come, so in March itself this transaction has got culminated so once that was done there was no other hindrance; there was no other reason why an initial public offering (IPO) should not happen and therefore we got a resolution passed by the Board. It’s an in-principle approval to do an up to 10 percent; it’s an up to 10 percent dilution or up to 10 percent sale of shares.
Q: What sort of valuation would you be looking at?
A: I have no idea. I cannot comment on valuation. We have not discussed bankers as I said this is only a very preliminary thing which we have done, a preliminary approval we have taken because we cannot appoint bankers, we cannot appoint lawyers, we can’t start with the documentation unless and until the Board has approved, so now that the Board has approved we have our own board meeting on the 3 May. Once that is behind us we will start working on appointing bankers getting the documentation done and so and so forth.
Q: And any plan to list the general insurance business as well?
A: No, at this moment no plans to list the general insurance business. Ergo which is our partner in the general insurance business is proposing to increase their stake from 26 percent to 49 percent and that transaction also should happen in the near future.
Q: Has your cost of funds come down and are you looking at cutting rates anytime soon?
A: See cost of funds you have to look at not just the marginal costs of funds for incrementally what happens in the last 1-3 weeks, but you have to look at it over a period of time. Now interest rates had come down a lot till December-November then we started seeing a spike in interest rates in January, February and half of March. To the high levels that prevail in January, February and March absolutely rates have come down. But it takes a while before the lower incremental costs percolate into the systems where your old loans get hold, borrowings get re-priced, so it’s a constant process that we have an asset-liability management committee and they keep meeting regularly to review, when to review interest rates and review of variety of other things, so that’s a constant review which will happen.
HDFC stock price
On April 19, 2017, Housing Development Finance Corporation closed at Rs 1490.00, up Rs 10.20, or 0.69 percent. The 52-week high of the share was Rs 1536.25 and the 52-week low was Rs 1075.60.
The company's trailing 12-month (TTM) EPS was at Rs 50.39 per share as per the quarter ended December 2016. The stock's price-to-earnings (P/E) ratio was 29.57. The latest book value of the company is Rs 214.47 per share. At current value, the price-to-book value of the company is 6.95.
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