Hdfc Ltd. : Buy, Sell, Hold or Ignore?
\Over the last 7-10 years you could have heard the following comments:
1. Only banks can give home loans and make money: After all their cost of funds is lesser, so I will sell all my Hdfc Ltd. shares and shift to something else.
- a senior professional in financial services, considered an expert on valuation.
2. The margins in giving loans is so low, that Hdfc cannot be making money.
- a senior merchant banker who often advises start ups on valuation.
3. This company had smartly kept its competitors away for so long. Now that there is competition, it is a sell.
- an ex-employee of this group.
4. The kind of losses that the life insurance subsidiary is making it is a great share to sell. No even buy PUT options.
- an ex-employee of this group.
Well…let me give you my view. I originally got these shares in 1980- and then in subsequent rights and bonus issues. I am not sure, but I also got a chance to buy this share at Rs. 97 per share – when it had a face value of Rs. 100. Of course there was only one bonus issue, but I guess there were one or two rights issues at a low premium.
Thanks to this holding we also got shares of Hdfc bank at par…just 200 shares per folio, but we had 4 folios, so that was 800 shares.
At various points in time I have sold shares of Hdfc Ltd – but still hold some shares.
It is easy to get carried away by the noise about 'margins', 'nothing new is happening' , it is a dull and boring company, no new ideas come from them anymore….and some of these may even be correct.
HOWEVER Hdfc in all its forms is a wealth creator. A wealth creator par excellence. It has made money for its shareholders (which includes its many extremely lucky employees). It has made money in funding houses, funding builders, buying and holding equities, it has made money in its investing in subsidiaries (Hdfc standard life insurance is still to break even), it has made money in promoting and selling off of companies – Intelenet. However all the money is made because of one man's tremendous vision, reputation, clean image, and an authoritative hold on the construction and housing finance industry. Mr. Deepak Parekh. He is Hdfc. Hdfc is Mr. Deepak Parekh.
What should you do at this stage with this share? Well the next 30 years is nowhere to be as great as the past 30 years, PERHAPS.
However with such a spurt in housing prices, and such a large majority of Indians trying to buy houses, Hdfc Ltd. will continue to help people buy houses.
As I said I am personally holding shares, have sold shares, units of Hdfc mutual fund, policies of Hdfc standard life, equity broking account with Hdfc Securities, bank account with Hdfc bank, …AND I HAVE NO REGRETS.
Personally I think the best is surely behind it. However it is far superior to some other lousy shares to buy in the market. It is a leader in financial services. What about the losses in the life insurance business? Well that is insignificant in relation to its total net-worth. So relax.
To me it is still either a hold or a buy. What is the latest trigger? Well a rumor that all the investments (the non core investments are also some great ideas like NSE, ILFS, etc.) will be kept in a SPV. This can only mean that there will be some investors in the SPV which will encash on some of the value of these invest ments. Now this will be in Hdfc Ltd. – which in turn can either reduce its cost of lending (so improving its margins) or declare a SPECIAL dividend – thus putting cash in your hands. Now all of this is not my idea from my fertile head but this is what he has told Ms. Menaka Doshi of Cnbc in an interview. Well not exactly in so many words, but some what like this. So have fun.
All in the reams of speculation, as a shareholder you will also be entitled to say 200 equity shares of Hdfc Standard Life Insurance. This will again put some cash in your hands…so Hdfc ltd is still a hold or a BUY. Apart from all this you will get 350% (of the face value) as dividend for the current year, in the year 2012 you can expect a small bonus, and in case SEBI forces 'uniform face value' it could become a share with a face value of Re 1.
Of course if Hdfc Ltd were to be merged into Hdfc bank (I have been hearing about this since year 2000 if not earlier) that will be a bonus.
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