HDB Financial, the HDFC Group Company, is the leading NBFC in India. The HDB Financial is doing business in two operating segments, i.e. Lending business and BPO services.

Revenue Streams

1. The lending business includes providing finance to retail customers for a variety of purposes like purchase of commercial equipment and commercial vehicles, personal purposes, enterprise loans, etc.

Revenue from lending business includes

(i) interest income and processing fees net of loan origination costs.

(ii) collection-related charges like cheque bouncing charges, late payment charges, and foreclosure charges.

(iii) insurance commission.

2. BPO services comprise of sales support services, back office, operations, processing support, running collection call centers, and collecting overdue amounts from borrowers for HDFC group companies.

Q1 Numbers:

On July 23, it has informed the National Stock Exchange regarding its financial results for Q.E June-20. HDB Financials has shown revenue growth of 6% YoY in the first quarter of June-20 as compared to the same period last year. However, QoQ, there is a fall in revenue of 4.2%. The fall is mainly on sales of services. The interest income, the core business income has seen no impact. The interest income has gone up from 1951 Crores in June-19 to 2153 Crores in June-20. The expense has increased from 2187 Crores year in the first quarter to 2531 Crores this year. Due to this, the net profit after tax has gone down to 111 Crores from 210 Crores last year.

Why has Expense gone up?

If you check the financials of the company, there is an item called “Impairment on financial assets”. The value of this item has gone up from 337 Crores to 686 Crores, resulted in a decrease in profit in the first quarter as compared to the same period last year. This figure indicates that the market value of the financial investment done by the company has gone down. These days in the new accounting system the company needs to show a decrease in the value of the financial asset in the P&L under expense. This helps investors to know the impact of market forces on the assets of the company. The balance sheet is not available with UnlistedZone to know the exact financial asset whose value has gone down.

UnlistedZone View:

The PAT numbers are looking bad because of impairment. However, HDB Financials is doing business quite well. The Company is duly servicing its debt obligations, maintaining a healthy capital adequacy ratio, and has adequate capital and financial resources to run its business. They are not facing any issue in raising money for lending as well, which is otherwise becoming difficult for low-grade NBFCs.

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