CMP 312.50

Target Price 345.00

ISIN: INE580B01029

APRIL 12th

2014

GRUH FINANCE LTD.

Result Update: Q4 FY14

BUYBUYBUYBUY

Index Details

Stock Data

Sector Housing Finance

BSE Code 511288

Face Value 2.00

52wk. High / Low (Rs.) 325.00/188.00

Volume (2wk. Avg.) 12000

Market Cap (Rs. in mn.) 56296.88

Annual Estimated Results (A*: Actual / E*: Estimated)

YEARS FY14A FY15E FY16E

Net Sales 8456.90 10317.42 11761.86

EBITDA 7905.40 9471.39 10809.15

Net Profit 1769.60 2052.00 2294.13

EPS 9.82 11.39 12.73

P/E 31.81 27.44 24.54

Shareholding Pattern (%)

1 Year Comparative Graph

GRUH FINANCE LTD. BSE SENSEX

SYNOPSIS

Gruh Finance Ltd (GRUH) is a housing Finance company recognized by National Housing Bank.

Net Interest Margin for the quarter ended March 31, 2014, stood at Rs. 2706.6 mn as against Rs. 2177.5 mn in Q4 FY13, registered a growth of 24%.

Operating Profit is Rs. 2417.7 mn as against Rs. 1836.9 mn in the corresponding period of the previous year.

PAT jumps to Rs. 736.00 mn against Rs. 630.60 mn in the corresponding quarter ending of previous year, an increase of 16.71%.

The Gross NPAs as at March 31, 2014 stands at Rs. 188.7 mn. Gross NPA constitute 0.27 % of the total loan outstanding of Rs. 70090.4 mn as against gross NPA for the previous year at Rs. 176.4 mn or 0.32 of the outstanding loans.

Capital Adequacy Ratio for the Company stands at 16.36% as at March 31, 2014.

Loan disbursements during the period were Rs. 25774.7 mn as against Rs. 21743.9 mn in the previous year indicating a growth of 19%.

GRUH’s deposits portfolio has grown to Rs. 10028.8 mn in Q4 FY14 from Rs. 6499.5 mn in Q3 FY13, indicating a growth of 54%.

GRUH’s Fixed Deposit programme is rated “FAAA” by CRISIL and “MAAA” by ICRA.

GRUH’s Short term borrowings including Commercial Paper (CP) and short term NCD’s is rated at “A1(+)” by CRISIL and ICRA.

GRUH’s Long term Non Convertible Debenture is rated at “AA+” by CRISIL and ICRA. GRUH’s Subordinated Debt NCD’s (Tier II) is rated AA+ by CRISIL and ICRA.

Gruh Finance Ltd has recommended a dividend of Rs. 3 Per Share of face value of Rs. 2 each.

Net Sales & PAT of the company are expected to grow at a CAGR of 22% and 16% over 2013 to 2016E respectively.

PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

Gruh Finance Ltd. 312.50 56296.88 9.82 31.81 9.27 150.00

HDFC Ltd. 917.65 1432022.70 33.79 27.16 5.72 625.00

Dewan Housing Finance Corp. Ltd. 222.45 28567.10 45.54 4.88 0.88 50.00

Can Fin Homes Ltd. 231.35 4739.30 34.73 6.66 1.21 40.00

Recommendation & Analysis - ‘BUY’

The company’s Loan Assets has registered a growth of 29% from Rs. 54378.0 mn as on March 31, 2013 to Rs.

70090.4 mn as on March 31, 2014. Net Interest Margin for the quarter ended March 31, 2014, stood at Rs. 2706.6

mn as against Rs. 2177.5 mn in Q4 FY13, registered a growth of 24%. Operating Profit is Rs. 2417.7 mn as against

Rs. 1836.9 mn in the corresponding period of the previous year. PAT jumps to Rs. 736.00 mn against Rs. 630.60

mn in the corresponding quarter ending of previous year, an increase of 16.71%.

The Gross NPAs as at March 31, 2014 stands at Rs. 188.7 mn. Gross NPA constitute 0.27 % of the total loan

outstanding of Rs. 70090.4 mn as against gross NPA for the previous year at Rs. 176.4 mn or 0.32 of the

outstanding loans. Following the accretion to reserves of Rs. 1162.5 mn from the current year’s profits, the

Networth of the Company has grown to Rs. 6072.4 mn, up from Rs. 4909.9 mn in the previous year. Capital

Adequacy Ratio (CAR) for the Company stands at 16.36% as at March 31, 2014 as against the required minimum

CAR 12% as stipulated by NHB the Tier I Capital stands at 14.70% while Tier II capital is 1.66%.

GRUH’s Fixed Deposit programme is rated “FAAA” by CRISIL and “MAAA” by ICRA. The rating indicates that

degree of safety of repayment of principal and interest is very strong. GRUH’s Short term borrowings including

Commercial Paper (CP) and short term NCD’s is rated at “A1(+)” by CRISIL and ICRA and GRUH’s Long term Non

Convertible Debenture (NCD) is rated at “AA+” by CRISIL and ICRA. GRUH’s Subordinated Debt NCD’s (Tier II) is

rated AA+ by CRISIL and ICRA.

In a challenging economic environment of slow growth, high inflation and high interest rates, the Company has

performed well. Over FY2013-16E, we expect the company to post a CAGR of 22% and 16% in its top-line and

bottom-line respectively. Hence, we recommend ‘BUY’ for ‘GRUH FINANCE LTD’ with a target price of Rs.

345.00 for medium to long term investment.

QUARTERLY HIGHLIGHTS (STANDALONE)

Results updates- Q4 FY14,

Gruh finance limited (GRUH) is a subsidiary company of HDFC LTD, it is a housing Finance company recognized

by National Housing Bank. The company has reported its financial results for the quarter ended 31st March, 2014.

Months Mar-14 Mar-13 % Change

Net Sales 2544.20 1942.20 31.00

PAT 736.00 630.60 16.71

EPS 4.09 3.53 15.65

EBITDA 2417.70 1836.90 31.62

The company net profit jumps to Rs. 736.00 million against Rs. 630.60 million in the corresponding quarter

ending of previous year, an increase of 16.71%. Revenue for the quarter rose by 31.00% to Rs. 2544.20 million

from Rs. 1942.20 million, when compared with the prior year period. Reported earnings per share of the

company stood at Rs. 4.09 a share during the quarter, registering 15.65% increase over previous year period.

Profit before interest, depreciation and tax is Rs. 2417.70 millions as against Rs. 1836.90 millions in the

corresponding period of the previous year.

Break up of Expenditure:

Break up of Expenditure Rs. Millions

Q4 FY14 Q4 FY13

Employees Benefit Expenses 59.60 41.60

Depreciation 6.40 5.40

Other Expenditure 59.50 54.90

Provision for contingencies 7.40 8.80

Latest Updates

� Gruh Finance Ltd has recommended a dividend of Rs. 3 Per Share of face value of Rs. 2 each. The Company

also approved the issue of Bonus shares in the ratio of 1:1 to the shareholders of the Company. The Issue of

bonus shares is subject to the approval of the shareholders of the Company.

� GRUH’s housing loan portfolio as at March 31, 2014 amounted to Rs. 70090.40 mn as against Rs. 54378.0 mn

over the corresponding quarter last year, an increase of 29%.

� Loan disbursements during the period were Rs. 25774.7 mn as against Rs. 21743.9 mn in the previous year

indicating a growth of 19%. Cumulative loan disbursements as of March 31, 2014 were Rs. 120940.5 mn.

� GRUH’s deposits portfolio has grown to Rs. 10028.8 mn in Q4 FY14 from Rs. 6499.5 mn in Q4 FY13,

indicating a growth of 54%. During the year, ICRA upgraded the rating on GRUH’s Fixed Deposit programme

to MAAA from MAA+.

� GRUH’s Fixed Deposit programme is rated “FAAA” by CRISIL and “MAAA” by ICRA. The rating indicates that

degree of safety of repayment of principal and interest is very strong.

� GRUH’s Short term borrowings including Commercial Paper (CP) and short term NCD’s is rated at “A1(+)” by

CRISIL and ICRA and GRUH’s Long term Non Convertible Debenture (NCD) is rated at “AA+” by CRISIL and

ICRA.

� GRUH’s Subordinated Debt NCD’s (Tier II) is rated AA+ by CRISIL and ICRA.

� The Gross NPAs as at March 31, 2014 stands at Rs. 188.7 mn. Gross NPA constitute 0.27 % of the total loan

outstanding of Rs. 70090.4 mn as against gross NPA for the previous year at Rs. 176.4 mn or 0.32 of the

outstanding loans.

� Following the accretion to reserves of Rs. 1162.5 mn from the current year’s profits, the Networth of the

Company has grown to Rs. 6072.4 mn, up from Rs. 4909.9 mn in the previous year. Capital Adequacy Ratio

(CAR) for the Company stands at 16.36% as at March 31, 2014 as against the required minimum CAR 12% as

stipulated by NHB the Tier I Capital stands at 14.70% while Tier II capital is 1.66%.

� Loan Assets has registered a growth of 29% from Rs. 54378.0 mn as on March 31, 2013 to Rs. 70090.4 mn as

on March 31, 2014.

COMPANY PROFILE

GRUH Finance Ltd, subsidiary of HDFC is jointly promoted by HDFC & AKFED, established on July 21, 1986, it

commenced in 1988 from Ahemedabad, Gujarat. Gruh Finance has been recognized by National Housing Finance

Bank (NHB) for its refinance facility. GRUH has a network of 142 retail offices across seven states of the country.

The company‘s main business is to provides loans for purchase, construction of residential house, repairs,

renovation of dwellings units.

GRUH’s major focus has been to provide home loans to individuals and families for purchase, constructions and

extension. GRUH also provides loans for repair and renovations of houses and to families in the self employed

category where formal income proofs are not easily available and the repayment capacity of such families are

appraised based on their cash flows.

Apart from extending home loans, GRUH offers loans for purchase and construction of non-residential properties

(NRP). GRUH offers developers finance and mortgage loans on a selective basis.

Products

� Housing Loans

o Gruh Suraksha

o Gruh Suvidha

o Gruh Sajavat

o Gruh Samruddhi

o Gruh Shubh Labh

o Gruh Sahyog

� Deposits Plans

o Gruh Fixed Deposit

o Monthly Income

o Quarterly Income

o Annual Income

o Cumulate Growth

� Insurance

� Property Insurance

GRUH has tied up with Oriental Insurance Company Ltd. for covering the property financed by GRUH.

Under this tie up, customers can make payment for their property insurance through GRUH.

� Life Insurance

GRUH has made an arrangement with Bharti AXA Life Insurance Company Ltd. (BAL) to provide for life

insurance cover for its customers.

Fellow Subsidiaries

Housing Development Finance Corporation (HDFC) which holds 54.49% stake in GRUH is the holding company

of GRUH. The company’s fellow subsidiaries are as on 31st March 2013 (Annual Report):

• HDFC Developers

• HDFC Investments

• HDFC Holdings

• HDFC Asset Management

• HDFC Trustee

• HDFC Standard Life Insurance

• HDFC Realty

• HDFC Ergo General Insurance

• Home Loan Service of India

• HDFC Sales

• HDFC Ventures Trustee Company

• HDFC Property Ventures

• HDFC venture capital

• HDFC Education and Development services

• HDFC life pension fund Management

• H T Parekh Foundation

FINANCIAL HIGHLIGHT (STANDALONE) (A*- Actual, E* -Estimations & Rs. In Millions)

Balance Sheet as at March 31, 2013 -2016E

GRUH FINANCE LIMITED. FY13A FY14A FY15E FY16E

EQUITY AND LIABILITIES:

Shareholders’ Funds:

Share Capital 357.00 360.30 360.30 360.30

Reserves and Surplus 4552.90 5712.10 7764.10 10058.23

1. Sub-Total Net worth 4909.90 6072.40 8124.40 10418.53

Non-Current Liabilities:

Long-term borrowings 37057.50 50543.30 59641.09 66201.61

Other Long Term Liabilities 220.60 155.20 170.72 184.38

Long Term Provisions 417.00 528.70 602.72 662.99

2. Sub-Total Non-Current Liabilities 37695.10 51227.20 60414.53 67048.98

Current Liabilities:

Short-term borrowings 687.70 4729.90 5439.39 6092.11

Trade Payables 7.50 8.00 8.48 9.16

Other Current Liabilities 12157.00 9743.50 8574.28 7802.59

Short Term Provisions 543.10 651.20 742.37 809.18

3. Sub-Total Current Liabilities 13395.30 15132.60 14764.51 14713.05

TOTAL EQUITY AND LIABILITIES (1+2+3) 56000.30 72432.20 83303.45 92180.56

ASSETS:

Non-Current Assets:

Tangible Assets 104.80 104.70 107.84 110.54

Intangible Assets 13.00 5.60 6.72 7.73

Non Current Investments 403.30 432.80 458.77 481.71

Deferred tax assets 124.60 169.00 199.42 223.35

Long Term Loans and Advances 50423.80 66064.40 76533.76 85089.25

4. Sub-Total Non-Current Assets 51069.50 66776.50 77306.51 85912.57

Current Assets:

Current Investments 248.10 96.80 108.42 117.09

Cash and Bank Balances 221.20 831.70 956.46 1071.23

Short Term Loans and Advances 217.20 370.90 445.08 502.94

Other Current Assets 4244.30 4356.30 4486.99 4576.73

5. Sub-Total Current Assets 4930.80 5655.70 5996.94 6267.99

TOTAL ASSETS (4+5) 56000.30 72432.20 83303.45 92180.56

Annual Profit & Loss Statement for the period of 2013 to 2016E

Value(Rs. Mn) FY13A FY14A FY15E FY16E

Description 12m 12m 12m 12m

Net Sales 6504.40 8456.90 10317.42 11761.86

Other Income 0.10 4.70 0.00 0.00

Total Income 6504.50 8461.60 10317.42 11761.86

Expenditure -472.50 -556.20 -846.03 -952.71

Operating Profit 6032.00 7905.40 9471.39 10809.15

Interest -4044.20 -5436.30 -6523.56 -7567.33

Gross profit 1987.80 2469.10 2947.83 3241.82

Depreciation -19.70 -24.50 -28.91 -33.25

Profit Before Tax 1968.10 2444.60 2918.92 3208.57

Tax -509.30 -675.00 -866.92 -914.44

Net Profit 1458.80 1769.60 2052.00 2294.13

Equity capital 357.00 360.30 360.30 360.30

Reserves and Surplus 4552.90 5712.10 7764.10 10058.23

Face value 2.00 2.00 2.00 2.00

EPS 8.17 9.82 11.39 12.73

Quarterly Profit & Loss Statement for the period of 30th Sep, 2013 to 30th June, 2014E

Value (Rs. Mn) 30-Sep-13 31-Dec-13 31-Mar-14 30-Jun-14E

Description 3m 3m 3m 3m

Net Sales 2105.00 2173.90 2544.20 2391.55

Other income 0.00 0.00 0.00 0.00

Total Income 2105.00 2173.90 2544.20 2391.55

Expenditure -202.60 -201.00 -126.50 -215.24

Operating Profit 1902.40 1972.90 2417.70 2176.31

Interest -1389.90 -1408.80 -1479.30 -1568.06

Gross profit 512.50 564.10 938.40 608.25

Depreciation -5.40 -6.90 -6.40 -6.78

Profit Before Tax 507.10 557.20 932.00 601.47

Tax -163.60 -204.80 -196.00 -174.43

Net Profit 343.50 352.40 736.00 427.04

Equity capital 359.10 359.10 360.30 360.30

Face value 2.00 2.00 2.00 2.00

EPS 1.91 1.96 4.09 2.37

Ratio Analysis

Particulars FY13A FY14A FY15E FY16E

EPS (Rs.) 8.17 9.82 11.39 12.73

EBITDA Margin (%) 92.74% 93.48% 91.80% 91.90%

PBT Margin (%) 30.26% 28.91% 28.29% 27.28%

PAT Margin (%) 22.43% 20.92% 19.89% 19.50%

P/E Ratio (x) 38.24 31.81 27.44 24.54

ROE (%) 29.71% 29.14% 25.26% 22.02%

ROCE (%) 14.19% 12.93% 12.98% 13.11%

Debt Equity Ratio 7.69 9.10 8.01 6.94

EV/EBITDA (x) 15.47 14.01 12.71 11.80

Book Value (Rs.) 27.51 33.71 45.10 57.83

P/BV 11.36 9.27 6.93 5.40

Chart

OUTLOOK AND CONCLUSION

� At the current market price of Rs. 312.50, the stock P/E ratio is at 27.44 x FY15E and 24.54 x FY16E

respectively.

� Earning per share (EPS) of the company for the earnings for FY15E and FY16E is seen at Rs.11.39 and

Rs.12.73 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 22% and 16% over 2013 to 2016E

respectively.

� On the basis of EV/EBITDA, the stock trades at 12.71 x for FY15E and 11.80 x for FY16E.

� Price to Book Value of the stock is expected to be at 6.93 x and 5.40 x respectively for FY15E and FY16E.

� We recommend ‘BUY’ in this particular scrip with a target price of Rs.345.00 for Medium to Long term

investment.

INDUSTRY OVERVIEW

India’s financial services sector is diversifying and growing at a good rate. The sector is bank dominated with

commercial banks holding over 60 per cent of the total assets, followed by the insurance industry. The sector

comprises commercial banks, insurance firms, cooperatives, non-banking institutions, mutual funds, pension

funds and other financial entities.

Over the last 20 years, the sector has developed a more modern outlook. The government introduced several

reforms to liberalise, regulate and enhance the country's financial services by embracing best international

practices. The results have been encouraging, with India today globally recognised as among the most vibrant

and transparent capital markets regarding market efficiency and transparency.

While challenges still remain for the future, the prospects for India’s financial services are brighter than ever

before.

Insurance Sector

Insurance companies will now have greater freedom to invest in sectors such as IT and pharma. The Insurance

Regulatory and Development Authority (IRDA) has increased the sector specific exposure limit for investments

by insurers to 20 per cent of the total investment, from 15 per cent. Up till now, life and non-life insurers were

allowed to take an exposure in a specific sector – excluding banking, financial services and infrastructure sectors

– to 15 per cent of total investments (which included debt and equity).

Mutual Funds Industry in India

The mutual fund industry grew its assets by 11 per cent (Rs 85,000 crore), to Rs 8.78 trillion (US$ 141.13 billion)

in 2013 from Rs 7.93 trillion (US$ 127.46 billion) in 2012, with large fund houses leading the growth in average

assets under management (AUM). HDFC Mutual Fund, with AUM of Rs 1.09 trillion (US$ 17.52 billion) at the end

of 2013 and a 7.5 per cent growth from 2012, led among 44 fund houses, according to Association of Mutual

Funds in India (AMFI).

Securities and Exchange Board of India (SEBI) has earmarked nearly 85 districts for likely adoption by fund

houses; these areas have high bank deposits but limited investment opportunities. SEBI has made necessary

provisions to cater to the sector’s demands.

Private Equity, Mergers & Acquisitions in India

India is witnessing an increasing interest from private equity (PE) investors in the agri-logistics and cold chain

industry. PE firms have invested about US$ 151.55 million in 11 companies in the sector over the last three years,

as per Venture Intelligence.

Foreign Institutional Investors (FIIs) in India

Foreign institutional investors (FIIs) bought debt securities worth Rs 8,155 crore (US$ 1.31 billion) and sold

bonds worth Rs 4,609 crore (US$ 740.95 million) over the first 10 days of January, 2014, according to SEBI data.

This resulted in a net inflow of Rs 3,546 crore (US$ 570.14 million).

Around the same period, the number of registered FIIs in India was reported to be 1,724, with the total number

of sub-accounts being 6,400. Investment in debt and equity totalled Rs 4,091 crore (US$ 657.84 billion).

Foreign investors invested about Rs 371,342 crore (US$ 59.71 billion) into India’s stock market in the four years

ended December 2013. This figure clearly surpasses the investments in the boom years of 2005–08.

Financial Services in India: Recent Developments

UK-based CDC Group has invested US $16 million in Chennai-based microfinance institution (MFI) Equitas. The

investment will help Equitas expand its financial services offerings, and possibly reach its targeted customer base

of 5.5 million from the present 1.5 million. CDC’s microfinance portfolio (by its funds investment) is valued at US

$160 million, with more than one-third of the portfolio in Indian MFIs.

HDFC Mutual Fund, India’s biggest asset management company, has acquired the schemes of Morgan Stanley

Mutual Fund India. The acquisition will add Rs 3,290 crore (US$ 528.96 million) to HDFC’s AUM of Rs 1.03 trillion

(US$ 16.56 billion).

Tech Mahindra Ltd has landed an outsourcing deal from Perpetual, an Australian financial services firm, to

provide registry services. The Mahindra group company will be providing technology support for Perpetual’s

superannuation and pension products.

Financial Services: Government Initiatives

In an effort to give impetus to bilateral ties, India and South Korea have decided to strengthen cooperation in

many key sectors, including trade, investment and defence. Nine pacts in different fields, including one in cyber

space cooperation, were inked following talks between the Indian prime minister and the South Korean

president.

The RBI could consider relaxing the 50 per cent group limit for non-banking financial companies (NBFCs) that

invest in insurance firms, on a case-to-case basis. Currently, if more than one company belonging to the same

group as the NBFC wants to acquire stake in the insurance company, the contribution of the other members in

the group cannot go beyond 50 per cent equity investment in the insurance joint venture (JV) company.

Road Ahead

The insurance sector has bright times ahead. Life Insurance Council, the industry body of life insurers in India,

has estimated a CAGR of 12–15 per cent over the next five years for the segment. The country’s insurable

population is projected to touch 750 million by 2020.

Furthermore, foreign investors' net inflows touched Rs 1 trillion (US$ 16.07 billion) in stocks in India during

2013, while investments in the country's equity market reached US$ 150 billion, an all-time high. This marked

only the third time that FII inflows in India have crossed the Rs 1 trillion (US$ 16.07 billion) mark in a year.

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale

of any financial instrument or as an official confirmation of any transaction. The information contained herein is

from publicly available data or other sources believed to be reliable but do not represent that it is accurate or

complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall

not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the

information contained in this report. This document is provide for assistance only and is not intended to be and must

not alone be taken as the basis for an investment decision.

Firstcall India Equity Research: Email – info@firstcallindia.com

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