gruh finance apr13 sbi cap

7/28/2019 Gruh Finance Apr13 SBI Cap

1/14

Gruh Finance Ltd. BUY: Rs 196 Target: Rs 241

Retail Research Housing Finance

Initiating Coverage 15 April 2013

Gruh Finance Ltd (GFL), a subsidiary of HDFC Ltd., was promoted in the year 1986. The company is a leading

small ticket size housing loan provider with predominately based in tier 2 and tier 3 cities & towns in the states

of Maharashtra and Gujarat driving ~70 percent of business.

The company's loan assets have grown rapidly at 24 percent CAGR in last 10 years and with, rapid geographical

expansion; we expect the tempo of growth momentum to continue at 24-26 percent CAGR for next 3-5 years. We

initiate coverage on the stock with 'BUY' rating.

Niche presence in relatively high growing market:

The Company predominately provides low ticket size housing loan to

individual in salaried and self employed categories. The company is

comfortably positioned with regards to loan to value ratios withaverage outstanding loan per head at 4.61 lakh as compared to

average cost of dwelling unit at Rs7.5 lakhs.

Gruh operates in tier 2 and tier 3 cities and towns in the states of

Maharashtra and Gujarat which is not only growing rapidly but are

relatively matured market as compared to other emerging real estate

geography. Over the year, due to rise in property price index, the

incremental credit per head is enhanced to Rs7.25 lakh.

The company is on a rapid geographical expansion mode to add

~10-12 branches per year in growing real estate market like Rajasthan,

Madhya Pradesh and Chhattisgarh etc.

Gruh has innovative products viz GRUH Suraksha, GRUH Suvidha,

GRUH Sajavat and GRUH Samruddhi to lend for different housing

needs.

Enjoys premium spread and NIM:

The Company being present in niche segment, enjoys on an average

over 13 percent yield on advances with healthy spread of over 4

percent and net interest margin ~5 percent.

These markets require tremendous of skill and experience to manage

risk and understand the demographic nature of borrowers. The

company has proven business model with 90 percent loan asset

comprises of individual loan and over 40 percent business coming

from rural areas.

To ensure a deeper geographic reach, GRUH has been sourcing

retail business through third party channels by appointing GRUH

Referral Associates (GRAs). GRAs only source loans while GRUH

retains control over the credit, legal and technical appraisals. Business

sourced through GRAs was 58.6 percent of incremental credit for the

year FY12.

Investment Rationale

Particulars 2011A 2012A 2013A 2014E 2015E

NII (Rs Cr) 133.5 166.6 246.0 297.2 377.2

PAT (Rs Cr) 91.5 120.3 145.9 194.9 249.3

EPS (Rs) 5.2 6.8 8.2 10.9 14.0

BV (Rs) 18.1 21.8 27.5 35.4 45.9

P/BV (x) 10.8 9.0 7.1 5.5 4.3Div Yield (%) 1.1 1.2 1.3 1.3 1.5

ROE (%) 31.4 34.2 33.3 34.7 34.4

ROA (%) 3.1 3.1 2.9 3.0 3.0

STOCK DATA

BSE Code 511288

NSE Code GRUH

Bloomberg Code GRHF IN

52 Week High / Low (Rs.) 250 / 127

Face Value (Rs.) 2.0

Diluted Number of Shares (Crore.) 17.9

Market Cap. (Rs Crore.) 3498

Avg. Yearly Volume (NSE) 34125

SHAREHOLDING PATTERN (%)

FINANCIAL SUMMARY

RELATIVE TO SENSEX

RETURNS STATISTICS (%)

Particulars Dec. Sept. Jun. Mar.

FY12 FY12 FY12 FY12

Promoters 59.9 59.9 60.0 60.4

FII 14.3 15.0 14.5 14.6

Other Institution 1.1 1.7 2.2 2.1

Public & Others 24.7 23.4 23.3 22.9

Total 100.0 100.0 100.0 100.0

1 M 3 M 6 M 12 M

Gruh Finance Ltd (2.8) (14.7) 6.7 53.0

Sensex (6.8) (7.2) (2.3) 5.3

RAJESH GUPTA -Research Analyst

Regd. Office: SBICAP Securities Limited, 191, Maker Towers 'F', Cuffe Parade, Mumbai 400 005

For a list of our branches refer to our website: www.sbicapsec.com

25.0

85.0

145.0

205.0

Mar-

12

May-

12

Jul-

12

Sep-

12

Nov-

12

Jan-

13

Mar-

13

Gruh Finance Ltd Sensex


2/14

Gruh Finance Ltd. Housing Finance

2 A ril 15 2013 SBICAP Securities Limited

Well capitalized balance sheet:

The NHB guideline has mandated minimum 12 percent Capital Adequacy

Ratio (CAR). The company has maintained on an average ~15 percent

CAR since last 4 years. We continue to believe that, Gruh would maintain

over 14 percent CAR going forward.

CAR (%)

Source: SBICAP Securities Research

Impressive growth in loan assets with low NPA

Despite the weak economic outlook and sluggish real estate market, loan

disbursement has grown at a 27 percent CAGR between 2009 and 2013

from Rs2091 crore to Rs5438 crore in respectively.

We expect the loan asset to further grow at a 27 percent CAGR for next

2 years between FY13A and FY15E to Rs8832 crore.

Despite impressive growth in loan assets, the quality of outstanding credit

remains intact, in fact the Gross Non Performing Assets (GNPA) as a

percentage of outstanding loan asset has reduced to 0.32 percent in FY13

from nearly 1 percent in FY09.

We expect, GNPA to remain below 0.4 percent level to due to strict credit

appraisal, though company continued its effort recover bad loans.

TOTAL OUTSTANDING ADVANCES & GNPA


13.3

14.0

14.614.7

15.0

12.0

13.5

15.0

16.5

FY11A FY12A FY13A FY14E FY15E

0.8

0.5

0.32 0.3 0.3

1,000.0

3,000.0

5,000.0

7,000.0

9,000.0

2011A 2012A 2013A 2014E 2015E0.1

0.3

0.5

0.7

0.9

Total Outs tanding Advances (Rs Cr) GNPA (%)

27% CAGR

~We continue to believe that, Gruh

would maintain over 14 percent CAR

going forward.

~We expect the loan asset to further

grow at a 27 percent CAGR for next

2 years between FY13A and FY15Eto Rs8832 crore.


3/14


SBICAP Securities Limited April 15, 2013 3

224

357

175

240 259

89

209215

291

63 66

130

25 22

0

125

250

375

G

ujarat

Maharashtra

Karn

ataka

Raja

sthan

MP

Chhattisgarh

TamilNadu

No. of Taluka Presence

100% provisioning coverage with rapid expansion on card

GFL has taken steps over and above the NHB guideline on provisioning

requirement. The Net Non-Performing Assets (NNPA) is NIL since last 5

years.

NHB has introduced 0.4 percent provision on standard assets from

Oct.2011onward and Guh has created additional provision over and aboverequirement as per prudential guideline.

The company presently has 134 retail branches and offices spread across

7 states. Gruh has planned to add 10-12 offices per year to take total tally

beyond 150 by FY15. We expect major expansion plan to be centered

around high growing states like Rajasthan, MP and Chhattisgarh etc.

PROVISION COVERAGE & GNPA


SANITATION LEVELS IN VARIOUS COUNTRIES

Source: SBICAP Securities Research / Company

~Rajasthan, MP and Chhattisgarh

would be the focus areas for further

expansion.

~We expect the penetration level to

increase with increasing investment

and focus towards development of

these states.

Attractive affordable home finance market

Due to rapid urbanization, the shortage of urban house stands at 18.8

million units (as per census 2011) ~99% is towards EWS/LIG/MIG.

According to the working group of rural housing, for Twelfth five year plan

(2012-2017) the estimated shortages of housing is expected to be ~44million units, nearly 90% of these shortage is with respect to the population

below poverty line (BPL).

0.8

0.5

0.32 0.3 0.3

10.0

40.0

70.0

100.0

2011A 2012A 2013A 2014E 2015E

0.2

0.5

0.7

1.0

Provision Coverage (%) GNPA (%)


4/14



According to KPMG, by 2050 India will add another 900 million people to

urban area and rate of urbanization is expected at ~2.1 percent CAGR,

double than China. Though, there has been phenomenal growth in

housing finance market over the years, the housing loan to GDP ratio ~7%

still far below than other emerging economies.

Housing finance market for loan between Rs3-10 lakh is estimated over

Rs1 trillion. Gruh's average ticket size of loan is less than Rs5 Lakh

whereas incremental credit per head is ~Rs7.25 lakh which falls under

Rs3-10 lakh categories which is driving the overall demand. Only 20% of

total loan disbursed in FY 2011 were loan in the bracket of 3-10 Lakh.

Valuations

On account of robust demand in affordable housing segment, Gruh's loan

assets are expected to grow at 27 percent CAGR over next 2 years to

Rs8832 crore whereas the loan and deposit to grow at 28 percent CAGR

for the same period to Rs8270 crore..

We expect net interest income of the company to grow at 24 percent

CAGR between 2013-2015E to Rs377 crore whereas the total income is

estimated to grow at 31 percent CAGR to Rs424 crore for the same period.

The spread on the other hand is likely to be maintained over 4 percent due

to its niche presence in rural and semi-urban areas. The company enjoys

one of the best NIM in the industry and we believe it would be in the range

of 4-5 percent going forward.

We also expect company to maintain 100% provisioning despite the

introduction of 0.4% provision on standard assets. Albeit Maharashtra and

Gujarat would continue to dominate overall geographies, the expansion to

other growing states may reduce the share of these states.

Though company is available at premium as compared to its peers, we

believe due to its unique business model and presence in Semi-Urban and

Rural area's of low ticket housing loan, Gruh would continue to trade at

premium to its peers. Over and above, high NIM, better spread andsuperior ROA coupled with strong parental back up also justifies premium

valuations.

At current price of Rs197, the stock is currently trading 18.0x and 14.1x of

its FY14E and FY15E earnings respectively whereas on P/BV, the same is

available at 5.6x and 4.3x respectively. We recommend a buy on the stock

with price target of Rs241 valuing at 6.8x of its FY14E BV of Rs35.4

providing and upside potential of 22 percent from current level.

~According to the working group of

rural housing, for Twelfth five year

plan (2012-2017) the estimated

shortages of housing is expected to

be ~44 million units.

~Housing finance market for loan

between Rs3-10 lakh is estimated

over Rs1 trillion. Gruh's average ticket

size of loan is less than Rs5 Lakh

whereas incremental credit per head

is ~Rs7.25 lakh which falls under

Rs3-10 lakh categories.

~ At current price of Rs197, the stock

is currently trading 18.0x and 14.1x

of its FY14E and FY15E earnings

respectively whereas on P/BV, the

same is available at 5.6x and 4.3x

respectively. We recommend a buy

on the stock with price target of

Rs241 valuing at 6.8x of its FY14E

BV of Rs35.4.


5/14



Industrial Opportunities:

Housing is one of the most basic needs of every individual. Housing sector

has strong backwards and forward linkages to over 250 industries and rank

4 in terms of multiplier effect in economy. After agriculture this is the

second largest employment generator with 33 mill ion people are associated

with the sector (Sources: NHB 2012 report).

Due to rapid urbanization (32% of population lives in urban as compared

to 28% in 2001) the shortage of urban house stands at 18.8 million units

(as per census 2011) ~99% is towards EWS/LIG/MIG. The wide gap

between actual demand and supply of housing units is primarily due to rise

in urbanization, middle class, rising per capita income whereas on the

supply side lack of availability of land and basic infrastructure, declining

affordability, legal and regulatory framework hampering the supply.

According to the working group of rural housing, for Twelfth five year plan

(2012-2017) the estimated shortages of housing is expected to be ~44

million units, nearly 90% of these shortage is with respect to the population

below poverty line (BPL). According to KPMG, by 2050 India will add

another 900 million people to urban area and rate of urbanization is

expected at ~2.1 percent CAGR, double than China.

Indian Housing Market

The housing finance market plays an important role in bridging the gap

between demand and supply. Though, there has been phenomenal growth

in housing finance market over the years, the housing loan to GDP ratio

~7% still far below than other emerging economies. One of the main

reasons is lack formal source of income for majority of population as more

than 60% of Indian population still depend upon agriculture.

The current financing mechanism prevalent in the country mostly targets

middle and high income sections of the society while the households

falling under low income and economically weaker sections category

especially from the unorganized work force have no or limited access to

housing finance due to seasonal income, lack of collateral, lack of clear

title and high transaction cost.

HFC's are unable to serve the LIG and MIG categories due to their inability

to provide required documentation. Though housing finance market for

loan between Rs3-10 lakh is estimated over Rs1 trillion, only 20% of total

loan disbursed in FY 2011 were loan in the bracket of 3-10 Lakh.

HOUSING LOAN AS % OF GDP

Source: NHB/Industry

LOAN DISBURSEMENT ACROSS TICKET SIZES (%)

Source: Industry

7

8086

101

87

41

2312 17

29

-

40

80

120

India

USA

UK

Denmark

Poland

France

Italy

China

Thailand

Malasiya

8.4 1.5

9.74.3 4.4

20.3

13.6 15.1

58.476.7 76.0

5

27

49

71

93

2009 2010 2011

Up to 0.5L 0.5 to 1L 1 to 3L 3 to 5L 5 to 10L Above 10L


6/14



Though scheduled commercial banks entered late in the housing finance

market, over the years the housing credit from commercial banks has

grown rapidly and their current share in overall housing finance market

stands at 55 percent as on March 2012.

Total credit towards housing loan (Including HFC's and SCB's) has grown

at 18 percent CAGR to Rs4.95 trillion since last 3 years, for HFC's the

same has clocked over 20 percent CAGR to Rs2.22 trillion whereas

housing credit from SCB's the grew 16 percent CAGR to Rs2.73 trillion.

Current regulatory structure helps to mitigate the risk better

After the global meltdown and housing crises in western countries and its

subsequent impact on global economy and financial intermediaries,

regulators across the world have taken several measures to save the

financial market and stop the leakages. Indian housing finance regulator

(NHB) has also taken several steps towards exposure limit, asset qualityand provisioning norms to better regulate the housing finance companies.

NHB for the first time has introduced provision on standard housing and

non-housing loan at 0.4 and 1 percent respectively, loan to value (LTV) for

individual loan up Rs20 lakh and above Rs20 lakh is fixed at 90 and 80

percent respectively

HOUSING LOAN BREAKUP (%)

Source: NHB/Industry

OUTSTANDING HOUSING LOAN OF HFC'S

Source: Industry

Loan Value Loan to Value Risk Weight (%)

Below 3 Million < 75% 50

3 to 7.5 Million < 75% 75

Below 7.5 Million >75% 100

Above 7.5 Million < 75% 125

Above 7.5 Million >75% 125

Source: NHB

Provisioning Norms Old New

Standard Housing Loan Nil 0.4

Standard Non-Housing Loan Nil 1.0

Doubtful Assets

3 to 15 Months 10.0 15.0

16 to 27 Months 20.0 25.0

28 to 51 Months 30.0 40.0

52 Months and Above 50.0 100.0

Loss Assets 100.0 100.0

Source: NHB

43.1 43.8 44.9

56.9 56.2 55.1

-

18.0

36.0

54.0

72.0

FY10 FY11 FY12

Share of HFC's Share of SCB's

5.0

12.0

19.0

26.0

FY10 FY11 FY12

50,000.0

130,000.0

210,000.0

290,000.0

Outstaidng Housing Loan (Rs Cr) Growth (%)


7/14



Various policy initiatives by government to promote housing

The government has set up Central Registry of Securitization Asset

Reconstruction and Security Interest of India (CERSAI) to prevent

fraud cases involving multiple loans on single immovable property. As on

June 2012, 251 institutions including 46 SCB's, 64 RRB's have been

registered and 4.83 million of registration of mortgage by deposit title deed

has been executed by SCB's and HFC's etc.

Interest subvention of 1%: The government in October 2009 introduced

1% interest subvention scheme for the first year for housing loan up to

Rs10 lakh where the cost of house does not increase Rs20 lakh.

IAY (Indira Awas Yojna) was started in the year 1989 and objective was

build 2 million house PA for BPL. This scheme is funded in the ratio of

75:25 by central and state government respectively for all states except

Union Territories and North East states. IAY envisages Rs45, 000 loans for

construction of home in plain area and Rs48, 500 loans in case hilly areas.

Rural Housing Fund (RHF): The government has set Rural Housing Fund

to increase the funding towards rural housing and overcome the impedimentsface by lending institutions. This scheme was started in the year 2008-09

to enable primary lending institution to source fund for lending in rural

areas. Till date a total budget support of Rs13, 000 crore is extended

under this scheme. During the budget 2013-14, the budgetary support is

enhanced to Rs6000 crore.

Urban Housing Fund: The Finance Minister in his budget speech 2013-

14 has announced to set up Urban Housing Fund (UHF) to reduce the

shortages of urban housing with proposed allocation of Rs2000 crore.

Golden Jubilee Rural Housing Finance Scheme (GJRHFS): This scheme

was launched in the year 1997 to mark the 50th anniversary of India'sindependence. The objective was to address the problems associated

towards the rural housing finance. This was the first rural housing scheme

which was based on market approach without subsidy. There is no ceiling

on the quantum of loan provided by banks under the scheme. All loans

extended by the banks in rural areas for housing purposes are included

under this scheme.

Interest Subsidy Scheme for Housing the Urban Poor (ISHUP): The

government under Ministry of Housing and Urban Poverty Alleviation

(MHUPA ) introduced this scheme to improve the affordability of housing

loan for EWS/LIG. Under this scheme an interest subvention of 5% is

provided for loan up to Rs1 lakh for entire tenure of loan (15-20 years).

Credit risk guarantee fund: The government has introduced this scheme

during union budget 2010-11. Under this scheme, the fund will provide

credit risk guarantee to the lending institutions against the housing loan up

to Rs5 lakh for EWS/LIG in urban areas without requiring any collateral or

third party guarantee. All SCB's HFC's, RRB's etc are eligible to take

benefit

~ The scheme is further extended up

to March 2013 and raised the housing

loan limit to Rs15 lakh and cost of

unit to Rs25 lakh.

~Of total Rs1900 crore NHB

refinancing by Gruh, Rs700 crore is

allocated towards GJRHFS


8/14



Company Background & Business Model:

Gruh Finance Ltd (GFL), a subsidiary of HDFC Ltd., was promoted in the

year 1986. The company is a leading small ticket size housing loan

provider in tier-2 and Tier-3 cities and town. The company offers loan to

individual for both salaried and self employed categories for purchase and

construction of dwelling units.

Apart from individual under housing categories, Gruh also offer loan to

individual under Non- Residential Property and Developers Loan.

Gruh has developed its own credit score model whereas individuals are

assessed on 22 credit parameters covering the various aspects like

Income, Family, Assets, Liabilities, Savings and Assets creation tendencies.

The company predominately based in two states viz Maharashtra and

Gujarat and ~70 percent of revenue coming from these two states.

In addition to that, it also has presence in other states like MP, Karnataka,

Tamil Nadu, Chhattisgarh and Rajasthan. The company is expanding its

geographical reach to high growing states especially in Rajasthan, MP and

Chhattisgarh. Gruh presently has 134 branches spread across 7 states

which is expected to cross 150 in next 2 years due to rapid expansion.

The loan fund of the company comprise of term loan from banks,

refinancing from NHB, NCD, Commercial Paper and fixed deposit from

public. The company also mandatorily maintains 12.5% SLR by investment

in approved securities. Of late, the dependence upon banking loan is

reducing whereas the refinancing from NHB and share of deposit is rising

which helps it to maintain strong NIM and spread above 4 percent level.

BORROWER PROFILE (%)

Source: Company

BRANCH NETWORK

Source: Company

BORROWING PROFILE (%)


TOTAL BORROWINGS & GROWTH


49

34

512

52

30

413

54

284

15

55

254

16

2012A 2013E 2014E 2015E

NHB Bank Loan NCD Deposit

92.0

4.0 4.0

-

25.0

50.0

75.0

100.0

Individual Individual NRP Loan Developers Loan

40 41

149

18

7 5

2.0

14.0

26.0

38.0

50.0

Gujarat

Maharashtra

Karnataka

Rajasthan

MP

Chhattisgarh

TamilNadu

1,500.0

4,000.0

6,500.0

9,000.0

2 011 A 201 2A 20 13A 201 4E 20 15E

24.0

26.0

28.0

30.0

Tot al Bo rrow in gs (Rs C r) Growth (%)


9/14



Housing Loan Products

Loan Scheme Gruh Gruh Gruh Gruh

Suraksha Sividha Sajavat Samruddhi

Categories Individual Individual Individual Professional

Max. Tenure (Years) 25 15 15 15

LTV (%) 85 85 85 85

The company, in order to expand its loan portfolio, has come up with various

innovative selling strategies for different borrowers as per their needs.

To ensure a deeper geographic reach, GRUH has been sourcing retail

business through third party channels by appointing GRUH Referral

Associates (GRAs). GRAs only source loans while GRUH retains control

over the credit, legal and technical appraisals. Business sourced through

GRAs was 58.6 percent of incremental credit for the year FY12 and has

paid Rs3.11 crore referral fees.

GRUH conducts outreach programmes from each of the retail offices to

potential Taluka. The outreach marketing programme also serves as

collection centre for collecting installments besides providing services of

enquiry handling, file opening and effecting disbursements.

The operations are monitored through district head quarters which comprise

of 10-15 Taluka's and within Taluka's, the area eligible for development

programs. The company deals all collections in cheques and wherever the

borrowers do not have bank account, a collection account is open and

borrowers have to deposit installment in that account.

The company derives nearly 93 percent of revenue from interest on

advances followed by fees and other charges and rest from other income.

We expect the trend of the revenue composition to be more or less in the

same range going forward.

The companies over the years have done well to improve its business per

employee. Profits per employee have grown at 20 percent CAGR between

2009 to 2012 whereas loan assets have clocked 12 percent CAGR for the

same period.

BUSINESS PER EMPLOYEE


EXPENSES COMPOSITION (%)


District Head Quarter

Taluka's

Eligible areas forvarious development programs

REVENUE COMPOSITION (%)

Source: Company

BUSINESS FLOW

93

5 2

-

25.0

50.0

75.0

100.0

Interest

Income

Fee & Other

Charges

Other

Income

14.7

18.520.4

25.4

6.1 6.67.1

8.6

2.0

9.5

17.0

24.5

32.0

2009A 2010A 2011A 2012A

5.0

8.2

11.4

14.6

17.8

21.0

Profit Per Emp. (Rs in Lakh)

Loan Assets per Emp. (Rs Cr)

88

6 6

-

25.0

50.0

75.0

100.0

Interest Expenses Employee Expenses Other Operating

Expenses


10/14



Q4FY13 performance

Particular Q4FY13 Q3FY13 Q-o-Q Q4FY12 Y-o-Y FY13 FY12 Y-o-Y

% Chng % Chng % Chng

Revenue from operation 194.2 166.4 16.7 165.7 17.2 650.4 514.2 26.5

Finance Cost 108.2 101.6 6.5 88.3 22.7 404.4 310.1 30.4

Net Interest Income 86.0 64.8 32.7 77.5 11.0 246.0 204.1 20.6

Other Income - 0.0 - - - 0.0 0.1 (85.7)

Total Income 86.0 64.8 32.6 77.5 11.0 246.0 204.1 20.5

Total Operating Expenditure 10.2 12.5 (18.2) 9.7 5.4 46.3 39.2 18.2

Employee Cost 4.0 6.5 (39.2) 4.2 (4.6) 23.4 19.7 19.1

Other Exp. 5.7 5.4 5.0 4.9 17.1 20.9 17.2 21.9

Depreciation 0.5 0.5 3.8 0.7 (18.2) 2.0 2.4 (16.5)

Profit Before Provision and Cont. 75.8 52.4 44.7 67.8 11.8 199.7 165.0 21.1

Provision & Contingencies 0.9 6.4 (86.3) 0.8 8.6 2.9 2.2 32.9

Profit before tax 74.9 45.9 63.1 67.0 11.8 196.8 162.8 20.9

Tax 11.9 17.1 (30.5) 11.4 3.7 50.9 42.4 20.1

Net Profit 63.1 28.9 118.3 55.6 13.5 145.9 120.3 21.2

The company during the full year Y13 has reported 20.6 and 21.1 percent growth in net interest income and PAT

to Rs246 and146 crore respectively. The loan asset has clocked 46 percent to Rs5438 crore during FY13 whereas

the net interest margin (NIM) has expanded to 5.2 percent from 4.6 percent during previous year.

The operating cost to net revenue is further declined to ~19 percent and we expect the trend to continue going

forward.

The spread too has improved from 4 to 4.5 percent during Q3FY13. The company has declared 125 percent

dividend for the year FY13 which translates into dividend payout of 36 percent.

The company has maintained CAR of 14.6 percent while the GNPA % is declined to 0.32 percent from 0.52 percent

during FY12.


11/14



Financials & Valuations:

On account of robust demand in affordable housing

segment, Gruh's loan assets are expected to grow at 27

percent CAGR over next 2 years to Rs8832 crore

whereas the loan and deposit to grow at 28 percent

CAGR for the same period to Rs8270 crore..

We expect net interest income of the company to grow

at 24 percent CAGR between 2013A-2015E to Rs377

crore whereas the total income is estimated to grow at

31 percent CAGR to Rs424 crore for the same period.

The spread on the other hand is likely to be maintained

over 4 percent due to its niche presence in rural and

semi-urban areas. The company enjoys one of the best

NIM in the industry and we believe it would be in the

range of 4-5 percent going forward.

We also expect company to maintain 100% provisioning

despite the introduction of 0.4% provision on standard

assets. Albeit Maharashtra and Gujarat would continue

to dominate overall geographies, the expansion to other

growing states may reduce the share of these states.

Though company is available at premium as compared

to its peers, we believe due to its unique business

model and presence in Semi-Urban and Rural area's of

low ticket housing loan, Gruh would continue to trade at

premium to its peers. Over and above, high NIM, better

spread and superior ROA coupled with strong parental

back up also justifies premium valuations.

At current price of Rs197, the stock is currently trading

18.0x and 14.1x of its FY14E and FY15E earnings

respectively whereas on P/BV, the same is available at

5.6x and 4.3x respectively. We recommend a buy on the

stock with price target of Rs241 valuing at 6.8x of its

FY14E BV of Rs35.4 providing and upside potential of

22 percent.

NET INTEREST INCOME & NET INTEREST MARGIN

Source: SBICAP Securities Research / Company

AVG. YIELD TO AD., AVG. COST OF BORROWING & SPREAD


ROA & ROE


Particulars Gruh Finance LIC HF GIC HF Repco HF

NIM (%) 5.2 2.6 2.7 4.2

ROA (%) 2.9 1.5 1.4 2.4

Spread (%) 4.5 1.7 1.9 3.2

PE (x) 24.1 11.6 6.5 15.9

P/BV (X) 7.2 2.0 1.2 1.9

GNPA (%) 0.3 0.4 2.1 1.4

NNPA (%) Nil 0.1 Nil 1.0

Valuation is based on TTM Dec.2012 whereas other ratios are based on FY12

data

RELATIVE VALUATIONS

4.7

4.6

5.2

4.8 4.8

50.0

165.0

280.0

395.0


4.0

4.3

4.5

4.8

5.0

5.3

Net Interest Income (Rs Cr) Net Interest Margin (%)

3.1 3.1

2.93.0 3.0

31.4

34.2

33.3

34.734.4

2.0

2.5

3.0

3.5


28.0

30.0

32.0

34.0

36.0

ROA (%) ROE (%)

4.3

4.0

4.5

4.24.3

2.0

5.5

9.0

12.5

16.0


3.5

3.7

4.0

4.2

4.4

4.6

Avg Yield to Ad. (%) Avg. Cost of Bor(%) Speard (%)


12/14



TOTAL OUTSTANDING ADVANCES & GROWTH


OPERATING COST / NET REVENUE (%)


1 YEAR ROLLING FORWARD PE


1 YEAR ROLLING FORWARD P/BV


2,200.0

4,400.0

6,600.0

8,800.0

2011A 2012A 2013A 2014E 2015E

-

8.0

16.0

24.0

32.0

40.0

Total Outstanding Advances (Rs Cr) Growth (%) Operating cost / Net Revenue (%)

20.0

19.1

18.8

19.3 19.5

17.9

18.7

19.6

20.4


0

70

140

210

280

Apr-10 Sep-10 Feb-11 Jul-11 Dec-11 May-12 Oct-12 Mar-13

Close Price 8.5x 13.0x 17.5x 22.0x

0

70

140

210

280

Apr-10 Sep-10 Feb-11 Jul-11 Dec-11 May-12 Oct-12 Mar-13

Close Price 2.5x 4.1x 5.7x 7.3x


13/14



Financial Statements (Consolidated):

Income Statement Figures in Cr.


Total Income 361.3 514.0 650.5 844.4 1,065.0

Total Finance Cost 200.9 310.1 404.4 512.5 640.9

Net Revenue 160.4 203.9 246.0 331.9 424.1

Total Expenditure 32.0 38.9 46.3 64.2 82.5

Employee Cost 15.7 19.7 23.4 28.3 38.7

As % of Net Revenue 9.8% 9.7% 9.5% 8.5% 9.1%

Other Operating Cost 16.3 19.3 22.9 35.9 43.8

As % of Net Revenue 10.2% 9.4% 9.3% 10.8% 10.3%

Operating Profit Before Prov. 128.3 164.9 199.7 267.7 341.6

Provisioning 2.7 2.2 2.9 4.3 4.8

PBT 125.6 162.8 196.8 263.4 336.8

Tax 34.1 42.4 50.9 68.5 87.6

Net Profit 91.5 120.3 145.9 194.9 249.3

Extra-ordinary Item - - - - -

Adjusted PAT 91.5 120.3 145.9 194.9 249.3

Equity 35.2 35.3 35.7 35.7 35.7

EPS 5.2 6.8 8.2 10.9 14.0

Cash EPS 5.3 7.0 8.3 11.0 14.1

FV 2.0 2.0 2.0 2.0 2.0

BVPS 18.1 21.8 27.5 35.4 45.9


Equities & Liabilities

Share capital 35.2 35.3 35.7 35.7 35.7

Reserves and surplus 282.8 350.3 455.3 596.3 783.3

Total Shareholder's Fund 317.9 385.6 491.0 632.0 819.0

Non-current liabil ities

Long-term borrowings 2,012.4 2,834.1 3,705.8 4,748.2 6,068.7

Other Non-Current Liabilities 33.0 48.6 63.8 67.0 87.5

Current liabilities 1,026.5 1,067.8 1,339.5 1,766.4 2,298.5

Total Liabilities 3,389.8 4,336.1 5,600.0 7,213.5 9,273.7

Assets

Net Fixed Assets 12.2 11.7 11.8 14.3 15.1

Non-current investments 12.4 24.3 40.3 88.2 146.9

Deff. Tax Assets (Net) 9.3 12.0 12.5 23.7 30.5

Long-term loans and advances 2,977.7 3,795.7 5,042.4 6,378.4 8,250.0

Other non-current assets 1.6 3.4 - - -

Total Non-Current Assets 3,001.0 3,835.4 5,095.2 6,490.4 8,427.3

Current Assets

Current Investment 22.2 0.1 24.8 - -

Cash and bank balances 123.7 169.5 22.1 160.7 126.8

Short-term loans and advances 30.6 34.8 21.7 92.0 117.5

Other Current Assets 200.0 284.6 424.4 456.1 587.0

Total Current Assets 376.6 489.1 493.1 708.9 831.3

Total Assets 3,389.8 4,336.1 5,600.0 7,213.5 9,273.7

Balance Sheet Figures in Cr.

Important Ratios:Return Ratios 2011A 2012A 2013A 2014E 2015E

ROE (%) 31.4 34.2 33.3 34.7 34.4

ROA (%) 3.1 3.1 2.9 3.0 3.0

NIM (%) 4.7 4.6 5.2 4.8 4.8

Op. Profit Margin (%) 80.0 80.9 81.2 80.7 80.5

PAT to Interest Income (%) 27.4 25.2 22.4 24.1 24.5

Cost to Income (%) 20.0 19.1 18.8 19.3 19.5

Earning Ratios

Yield on Advances (%) 11.9 13.1 13.7 13.2 13.0

Cost of Borrowing (%) 7.6 9.1 9.2 9.0 8.7

Spread (%) 4.3 4.0 4.5 4.2 4.3

CAR

Tier-I (%) 13.0 13.3 12.9 13.1 13.4

Tier-II (%) 0.4 0.7 1.6 1.6 1.6

Total (%) 13.3 14.0 14.6 14.7 15.0

Leverage (Asset / Net Worth) 10.7 11.2 11.4 11.4 11.3

Asset Quality

GNPA (Rs Cr) 25.7 21.2 17.4 21.5 26.6

GNPA (%) 0.8 0.5 0.3 0.3 0.3

Provisioning (%) 100.0 100.0 100.0 100.0 100.0

Valuation Ratios

PE (x) 37.8 28.9 24.1 18.0 14.1

P/BV (x) 10.9 9.0 7.2 5.6 4.3

Div. Yield (%) 1.1 1.2 1.3 1.3 1.5



14/14


Name Designation

Alpesh Porwal SVP & Head (Retail)

Rajesh Gupta Research Analyst

DISCLAIMER:I, Rajesh Gupta, PGDBM Finance -Analyst, author of this report, hereby c ertify that all of the views express ed in this research r eport accurately reflect my/our personal views about any and all of the subject issuer(s)or s ecurities. This report has been prepared based upon information available to the public and sou rces, believed to be reliable. I/We also certify that no part of my/our c ompensation was, is, or will be directly or

indirectly related to the specific recommendation(s) or view(s) in this report.

SBICAP Securities Limited (SSL),a full service Stock B roking Company and a m ember of National Stock Exchange o f India Ltd. (NSE) and Bombay Stock Exchange Ltd.(BSE). SSL is a wholly o wned subsidiary

of SBI Capital Markets Limited (SBICAP), which is engaged into the investment banking activities and is registered with the Securities and Exchange Board of India as a "Category I" Merchant Banker. SBICAP(Singapore) Limited, a fellow subsidiary of SSL, incorporated in Singapore is regulated by the Monetary Authority of Singapore as a holder of a c apital marke ts serv ices license and an exempt financial adviser in

Singapore. SBICAP (Singapore) Limited's ser vices are available only to a ccredited investors (other than individuals), and institutional investors in Singapore as defined in section 4A of the Securities and Futures

Act ( Cap. 289) o f Singapore. SBICAP (Singapore) is a wholly owned s ubsidiary of SBICAP. SBICAP ( UK) Limited, a fellow subsidiary of SSL, incorporated in United Kingdom is a uthorized and regulated by the

Financial Services Authority. [SBICAP, SBICAP (Singapore) Limited, SBICAP (UK) Limited and SSL are co llectively referred to as SBICAP Entities].

Recipients of this report should assume that SBICAP Entities (and/or its Affiliates) is seeking (or may seek or will seek) Investment Banking, advisory, project finance or other businesses and may receive

commission, brokerage, fees or other compensation from the c ompany or companies that are the s ubject of this material/ report. S SL (and/or its Affiliates) and its officers, directors and employees, including the

analysts and others involved in the pr eparation/issuance of this material and their dependant(s), may on t he date of this r eport/from time to time, have long/short positions in, act as principal in, and buy or sell the

securities or derivatives thereof of companies mentioned herein.

SSL's sales people, dealers, traders and other profess ionals may provide oral or written market commentary or tr ading stra tegies to its clients that reflect opinion that are contrary t o the opinions expresse d herein,

and its proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations

expres sed herein. SSL may have earlier issued or m ay issue in future reports on the companies cove red herein with recommendations/ information inconsistent o r different from those made in this report. Inreviewing this document, you should be aware that any or all of the foregoing, among other things, may give rise to potential conflicts of interest.

Please ensure that you have read "Risk Disclosure Document for Capital Market and Derivatives Segments" as prescr ibed by Securities an d Exchange Board of India before investing in Indian Securities Market.

The projections and forecasts described in this report should be carefully evaluated as these

1. Are based upon a number of estimates and assumptions a nd are inherently subject to significant uncertainties and contingencies.

2. Can be expected that some of the estimates on which these were based, will not materialize or will vary significantly from actual results, and such v ariances ma y increase over time.

3. Are not prepared with a view towards compliance with published guidelines or generally a ccepted accounting principles. No independent accountants have expressed an opinion or any other form of ass urance on

these.

4. Should not be r egarded, by mere inclusion in this report, as a represen tation or wa rranty by o r on behalf of SSL the authors of this r eport, or any other person, t hat these or their underlying assumptions will be

achieved.

This report is for information purposes only and SBICAP Entities accept no liabilities for an y loss or damage of any kind arising out of the use of this report. Though disseminated to clients simultaneously, not all

clients may receive this report at the same time. SSL will not treat recipients as clients by virtue of their receiving this report. It should not be construed as an offer to sell or solicitation of an offer to buy, purchaseor subscribe to any securities this report shall not form the basis of or be relied upon in connection with any contract or commitment, whatsoever. This report does not solicit any action based on the material

contained herein.

It does not constitute a pers onal recommendation and does not take into account the s pecific investment objectives, financial situation/circumstances and the particular n eeds of any specific p erson who may rece ivethis document. The securities discuss ed in this report may not be suitable for all the investors. SSL does not provide tax advice to its clients and you s hould independently evaluate the suitability of this report and

all investors are strongly advised to s eek professional consultation regarding any potential investment. Nothing in this r eport is intended by SBICAP Entities to be construed as legal, accounting or ta x advice.

Certain transactions including those involving futures, options, and other derivatives as well as non-investment grade sec urities give rise to substantial risk and are not suitable for all investors. F oreign curre ncy

denominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived from the investment. Investors in securities such as ADRs, the valueof which are influenced by foreign currenc ies effectively assume curre ncy risk.

The price, value and income of the investments re ferred to in this report may fluctuate and investors may realize losses on any investments. Past performance is not a g uide for future performance. Actual results

may differ materially from those set forth in projections. SSL has reviewed the report an d, the current or historical information included here is believed to be reliable, the accuracy and completeness of which is not

guaranteed. SSL endeavors to update on a rea sonable basis the information discussed in this document/material/ report, but regulatory compliance or other r easons may prev ent it from doing so.

This report/document has been prepared by SSL based upon information available to the public and sources, believed to be re liable. No representation or warranty, express or implied is made that it is acc urate or

complete.

The opinions express ed in this r eport are subject to c hange without notice and have no o bligation to tell the c lients when opinions o r information in this r eport change. This report has not been approved and will notor may not be reviewed or approved by any statutory or reg ulatory authority in India, United Kingdom or Singapore or by any Stock Exchange in India, United Kingdom or Singapore. This r eport may not be all

inclusive and may no t contain all the information that the recipient may con sider material.

This report does not constitute or purport to constitute investment advice in publicly accessible media and should not be reproduced, transmitted or published by the recipient. The report is for the use andconsumption of the recipient only. This report or any portion hereof may not be printed, sold or distributed without the written consent of SBICAP Entities.

The secur ities descr ibed herein may n ot be eligible for sale in all jurisdictions or to all categories of investors. The countries in which the companies mentioned in this report are or ganized may have restrictions on

investments, v oting rights or dealings in securities by nationals of other countries. Distributing /taking/sending/dispatching/transmitting this docu ment in certain foreign jurisdictions may be restricted by law, and

persons into whose p ossession this document comes should inform themselves about, and observe, any such re strictions. Failure to comply with this restriction may constitute a violation of any foreign jurisdiction

laws. Neither SBICAP Entities nor its directors, employees, agents or representatives shall be liable for a ny damages whether direct or indirect, incidental, special or conse quential including lost rev enue or lostprofits that may arise fro m or in connection with the use of the information. Further, no representation or warranty, express ed or implied, is made or given by or on be half of SBICAP Entities, nor any person who

controls it or any director, officer, employee, advisor or agent of it, or affiliate of any such person or such persons as to the accuracy, authenticity, completeness or fairness of the information or opinions contained

in this report and S BICAP Entities or such persons do not accept any re sponsibility or l iability for any such information or opinions and therefore, any liability or re sponsibility is e xpressly disclaimed.

Legal Entity Disclosure

Singapore: This report may be distributed in Singapore by SBICAP (Singapore) Limited (Registration No. 201026168R), a holder of a c apital markets services license and an exempt financial adviser in Singapore

and solely to p ersons who qualify as institutional investors or accredited investors (other than individuals) as defined in section 4A(1) of the Securities and Futures Act, Chapter 289 of Singapore (the "SFA") and is

not intended to be distributed d irectly or indirectly to any other class of person. Persons in Singapore should contact SBICAP (Singapore) Limited in respect of any matters ar ising from, or in connection with thisreport.

United Kingdom: "This marketing communication is being solely issued to and directed at persons (i) fall within one of the categories of "Investment Professionals" as defined in Article 19(5) of the Financial

Services and Mar kets Act 2000 (Financial Promotion) Or der 2005, as amended (the "Financial Promotion Order"), ( ii) f all within any of the categories of persons described in Article 49 of the Financial Promotion

Order ("High net worth companies, unincorporated assoc iations etc .") or (iii) any other person to w hom it may otherwise lawfully be made available (together "Relevant Persons") by SSL. The materials are exe mptfrom the general rest riction on the communication of invitations or inducements to e nter into investment activity on the basis that they are only being made to Relevant Person s and have therefore no t been approved

by an authorized pers on as would otherwise be required by section 21 of the Financial Services and Markets Act 2000 ("FSMA")."

This report is issued and distributed by SBICAP Entities without any liability / undertaking / commitment on the par t of itselves or SBI Capital Markets Limited or State Bank of I ndia or any other entity in the StateBank Group. Fur ther, in case of any commitment on behalf of State Bank of India or SBI Capital Markets Limited or any entity in the State Bank G roup, suc h commitment is valid only when separately confirmed by

that entity.

Corporate Office: SBICAP Securities Limited;

II Floor, A` Wing, Mafatlal Chambers, N.M.Joshi Marg, Lower Parel, Mumbai -400013

For any information contact us:

Toll Free: MTNL/BSNL Users: 1800-22-3345 / Private Telecom Users: 1800-209-9345 Or E-mail: [email protected]

gruh finance apr13 sbi cap

Documents