CD Equisearch Pvt Ltd Oct 4, 2016 Equities Derivatives Commodities Distribution of Mutual Funds Distribution of Life Insurance GIC Housing Finance Ltd (GICHFL) No. of shares (m) 53.9 Mkt cap (Rs crs/$m) 1782/267.9 Current price (Rs/$) 331/5.0 Price target (Rs/$) 405/6.1 52 W H/L (Rs.) 338/181 Book Value (Rs/$) 142/2.1 Beta 1.2 Daily volume (avg. monthly) 181280 P/BV (FY17e/18e) 2.2/1.9 P/E (FY17e/18e) 11.8/9.9 Cost to Income (FY16/17e/18e) 25.0/25.2/25.1 EPS growth (FY16/17e/18e) 20.9/21.2/19.4 NIM (FY16/17e/18e) 3.5/3.7/3.8 ROE (FY16/17e/18e) 17.9/19.6/20.6 ROA(FY16/17e/18e) 1.7/1.7/1.8 D/E ratio (FY16/17e/18e) 9.6/10.2/10.2 BSE Code 511676 NSE Code GICHSGFIN Bloomberg GICHF IN Reuters GICH.BO Shareholding pattern % Promoters 42.3 MFs / Banks / FIs 14.1 Foreign 1.7 Govt. Holding 0.0 Total Public 41.9 Total 100.0 As on Jun 30, 2016 Recommendation BUY Phone: + 91 (33) 4488 0055 E- mail: [email protected]Figures (Rs crs) FY14 FY15 FY16 FY17e FY18e Net Interest Income 189.72 207.05 256.63 315.00 378.44 Non Interest Income 15.95 16.76 19.09 22.69 25.34 Pre-Provision Profits 158.02 165.98 206.87 252.69 302.58 Net profit 97.55 102.96 124.50 150.90 180.16 EPS(Rs) 18.12 19.12 23.12 28.02 33.46 EPS growth (%) 14.7 5.5 20.9 21.2 19.4 Company Brief GIC Housing provides long term finance to individuals/businesses for purchase or construction of house or flat. Highlights Schemes like “Housing for All by 2022”, Smart Cities Mission & launch of AMRUT would doubtlessly boost growth of housing finance industry. The main focus will be on the slum redevelopment. Smart cities will require huge investment in infrastructure and real estate which will change the urban landscape and make Indian cities more livable and affordable. To keep pace with the competition around, GICHFL managed to start off well in the year with a loan book growth of 19.2% achieved in Q1FY17 y- o-y. The book size of ~Rs 8210 crs ($1234.0m) is strengthened by the high yielding LAP (loan against property) portfolio which brings additional 200-250 bps yield than the home loans. Despite continuous foreclosures, the company is able to sustain the growth in the portfolio. The disbursement in the last quarter leaped 15.3% to Rs 626 crs ($94.1m) as against Rs 543 crs ($81.6m) in Q1FY16, and demand across the country assures escalation in the disbursement figures in the coming quarters. As a smaller player in the housing finance industry, GICHFL cannot undermine the non performing assets which have become a major issue. In the last quarter, the GNPA rose to Rs 220 crs/$33.1m (~2.8%) from Rs 140 crs/$21.0m (~1.8%) recorded at the end of the last fiscal. Barring this issue, at the onset of this fiscal, positive trend seems to have taken the shape- NII for Q1FY17 jumped by 23.8% to Rs 68.73 crs/$10.3m (Rs 55.50 crs/$8.3m in Q1FY16). Higher provisioning in the last quarter owing to increase in the NPAs led the profits to grow by 14.4% to Rs 32.32 crs ($4.9m) as against Rs 28.25 crs ($4.2m) in the same period a year before. The stock currently trades at 2.2x FY17e BV (11.8x FY17e EPS) and 1.9x FY18e BV (9.9x FY18e EPS). GICHFL’s high margin yielding LAP portfolio is expected to resuscitate its fortunes. Rendering to middle and lower income class group, GICHFL unquestionably faces risk of rising stressed assets. Nevertheless, hefty growth in the loan book reinforced by marginal rise in NIMs would culminate in over 20% growth in earnings over the next two years. We therefore, assign “buy” rating on the stock with a target of Rs 405 based on 2.3x FY18e BV over a period of 6-9 months.
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CD Equisearch Pvt Ltd Oct 4, 2016
Equities Derivatives Commodities Distribution of Mutual Funds Distribution of Life Insurance
GIC Housing Finance Ltd (GICHFL) No. of shares (m) 53.9
Income statement figures translated at average rates; balance sheet and cash flow at year end rates; projections at current rates All dollar denominated figures are adjusted for extraordinary items.
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CD Equisearch Pvt Ltd
Equities Derivatives Commodities Distribution of Mutual Funds Distribution of Life Insurance
Recommendation
One of the brightest sectors which have emerged in the last few years is the housing finance sector which rides on a
host of structural factors that are expected to continue fuelling growth in years to come. With an annual growth rate of
18% during FY11 to FY16, the housing finance sector managed to outplay the overall bank credit growth rate. Also,
looking at the profitability indicators, HFCs continued to report a return of equity of 21% in FY16 (Source: ICRA).
Housing credit demand picked up in the second half of the last fiscal driven by disbursements against construction
linked loans, growth in small ticket affordable housing segment and renewed demand from Tier II and III cities.
While the larger HFCs continued to be more reliant on debt market instruments and fixed deposits for meeting their
funding requirements, the smaller HFCs continues to access NHB funding at a subsidized rate. In order to achieve the
“Housing for all by 2022” Mission, India needs to develop about 110 million housing units and investments of more
than USD 2 trillion is needed. The main focus is on the urban housing requirement and about 1.7 to 2 lakh hectare of
land is required to fulfill urban housing demand by 2022. The government also plans to increase the interest subsidy of
6.5% on loans granted to economically weaker sections (EWS) and lower income group (LIG) categories to construct
their houses. The higher cap on lending spread set by NHB, RHF and the UHF from 2% earlier to 3.5% has proved
positive for the sector, especially HFCs operating in small ticket housing loans segment.
Being a regional player, GICHFL has not been able to grow its portfolio like that of other industry players. While it
grew its book by just 18.3% (CAGR) in the last five years, Can Fin and Repco have been able to outperform the
industry by growing at 37% and 29.9% respectively in the last five years. One of the biggest challenges facing the
housing finance industry is the lack of formal credit flow to the lower income segments for their housing needs which
GIC has been able to serve well. Having a smaller average ticket size of Rs 15 lakhs compared to that of its competitors
like LICHF, HDFC (Rs 20-22 lakhs) and Can Fin Homes (17-18 lakhs), GICHFL has managed to grow its earnings at a
CAGR of 22.7% in the last five years.
GICHFL, in the past few years, has not only managed to post robust earnings growth but also broadened its product
portfolio. The company persists on increasing the share of high yielding non-core portfolio, also targeting non salaried
class which will drive its loan portfolio. Increased focus on qualitative growth buckled by profitability, we expect the
loan book to grow at a CAGR of 17.3% to Rs 9297 crs ($1397.3m) and Rs 10877 crs ($1634.9m) in FY17 and FY18
respectively with major whirl in the LAP portfolio. Expectation of further diversification in the borrowing mix with
more reliance on NHB for refinance and bond market, GICHFL may be able to deliver NIMs at 3.7-3.8% in a couple of
years. Along with the margins, increase in the proportion of LAP portfolio can translate NII to Rs 315 crs ($47.3m) in
FY17 and Rs 378.44 crs ($56.9m) in FY18 (CAGR of 21.4%).
The stock currently trades at 2.2x FY17e BV (11.8x FY17e EPS) and 1.9x FY18e BV (9.9x FY18e EPS). GICHFL high
margin yielding LAP portfolio is expected to resuscitate its fortunes. Rendering to middle and lower income class
group, GICHFL’s unquestionably faces risk of rising stressed assets. Nevertheless, hefty growth in the loan book
reinforced by marginal rise in NIMs would culminate in over 20% growth in earnings over the next two years. We
therefore, assign “buy” rating on the stock with a target of Rs 405 based on 2.3x FY18e BV over a period of 6-9 months.
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