The report said the housing major of inflating earnings and ROE over the past two years. The stocks of the company on BSE were trading at Rs 643 lower by 0.20% at 11.58 am IST. And reached intr-day low of Rs 637.

In a statement, HDFC said that on several occasions it had clarified its position on its accounting for investors as it related to the use of funds raised from zero-coupon bonds for investment in its subsidiaries.

HDFC said in a statement that its "management completely disagrees with the contents of the Macquarie report dated June 14 as the analyst concerned has not attempted to meet anyone from HDFC before making the aforesaid report and verify the facts and statements made therein."

Moreover it is surprising that Macquarie in its report as recently as 7 May 2012 had put a price target of Rs.775 on HDFC stock with an outperform rating based on the same facts and figures, HDFC said in a statement. We are therefore unable to understand as to what prompted the analyst to change his recommendation and outlook within a months time, HDFC said.

HDFC said it is both a housing finance company and is also a financial holding company. As a financial holding company, HDFC has been making investments in its subsidiaries and associates viz. HDFC Bank, HDFC Standard Life Insurance Company, HDFC ERGO General Insurance Company, HDFC Asset Management Company Ltd etc, HDFC said.

The company added that, Under the Indian GAAP, the accounts of HDFC are presented on a standalone basis wherein only the dividend 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 Rs 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 March 31, 2012, if the proportionate share of profits of HDFC in its subsidiaries and associates is considered, the profits of HDFC will be higher by Rs 1340 crores 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, HDFCs profits would still be higher by Rs 855 crore, HDFC said.

Further as and when IFRS is made applicable under Indian GAAP, the overall profits will go up further as some of the expenses on borrowings and loan sourcing will require to be amortized instead of currently being fully charged to the Profit and Loss account in the year of payment, HDFC said.

Further, the one-time provisioning requirements in respect of standard assets is not reflected in profit and loss account as it relates to all the past assets and is transitory in nature, HDFC said. The interest rates on retail home loans are lower on account of lower risk weights, lower NPAs and also diversified risk profile, HDFC said in the statement.

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