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Investment Rationale
• High CAR Ratio
• Growth in Housing Sector
• Targeting penetration in high growth Tier II & Tier III
cities
• Improving Asset Quality
• Consistent Net Interest Margin
• Disbursement growth
Company Description
GIC Housing Finance Limited provides housing financing
services to individuals and corporate customers in India. It
grants housing loans to individuals and to persons/entities
engaged in construction of houses/flats for residential
purposes. GIC has presence in 27 locations across the
country for business. Moreover, it has tie-ups with
Constructors to offer finance to people. It also has tie-ups with
businesses for a range of housing finance requirements. The
company was formerly known as GIC Grih Vitta Limited and
changed its name to GIC Housing Finance Limited in
November 1993. GIC Housing Finance Limited was
incorporated in 1989 and is based in Mumbai, India.
Investment Rationale
High CAR Ratio
On CAR front, GICHF is the most adequately capitalised
company relative to its peers. The capital adequacy (CAR) for
GICHF is at 18% as against the minimum requirement of 15%
stipulated by National Housing Bank (NHB). While competitors
like LIC Housing Finance & Dewan Housing Finance CAR
ratio is 15% & 17% respectively.
Growth in Housing Sector
Residential housing accounts for almost 80% of the total
construction activities in India. According to the apex body of
housing finance, NHB, there is still shortage of more than 45
lacs residential units in India. NHB also stated that housing
sector is expected to grow at CAGR of 15% to 20% over next
few years. This leaves ample scope for the company to
increase its portfolio. Currently around 80% to 85% retail
houses are financed by the various lending institutions. In the
long run acute demand- supply shortage is expected to keep
real estate prices on the higher side. According to government
of India, the regions which will have high shortage include
western India and southern India. GIC is set to garner
synergies as majority of its current branch network is located
in western and southern India. Further, it plans to penetrate
more in the western region. We think that high demand- supply
gap is expected to drive prices of the real estate higher which
in turn will drive demand for housing finance.
Targeting penetration in high growth Tier II & Tier III cities
GICHF with its strong Brand image & network of 27 branches
across southern & western markets of India has been able to
penetrate Tier II & Tier III cities. To support future business
growth, the management has stated that it plans to expand in
western and southern region from current 27 branches to 47
branches by FY12. Branch addition in those regions having
high house shortages will further augment credit portfolio of
the firm.
Improving Asset Quality
GIC major focus on salaried class individual and that makes it
less vulnerable of NPAs and helps it to improve asset quality.
Gross NPAs stood at 3.4% in 3QFY11 as against 4.3% as on
3QFY10. Net NPAs are at 0.7% as against 2.2% for same
period. The asset quality has witnessed significant
improvement.
Consistent Net Interest Margin
Even during 2008-09 recessionary periods the company could
maintain NIM of more than 3.5% consistently. The margins are
expected to remain stable as most of the loan book comprises
of floating rate loans which aligns yield on advances with cost
of funds. Since the firm hardly relies on public deposit, it is
exempted from 24% SLR investments unlike other banks or
NBFC’s. Credit off take will remain robust on account of
exemption from SLR investments.
During the 3QFY11, GICHF reported margins of 2.94% in
3QFY11 against 3.02% reported in 3QFY10 and 3.31% in
2QFY11. While the yields on advances have declined during
the quarter, the cost of funds has gone up as a result of which
the margins were under pressure. Going forward as well in a
rising interest rate environment the cost of funds will increase.
Disbursement growth
GICHF has recorded robust business growth. Sanctions grew
by 33% YoY to `2.8 billion while disbursements were up by
28% YoY to `2.3 billion in 3QFY11. The target customers for
GIC are middle and lower middle-income borrowers. The
current focus of the company is on salaried and self-employed
segment. As a result, loan book increased 17% YoY to `33
billion.
Valuation
At CMP the stock is quoting at 1.3x and 1.1x P/BV for FY12E
and FY13E respectively which is relatively lower than the peer
group like LIC Housing finance and Dewan Housing. We
assume conservative P/BV as 1.35x for FY13E which brings to
a target of Rs. 135.
Concern
Rising interest rate scenario and slow down in demand.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Investment Rationale
• High CAR Ratio
• Growth in Housing Sector
• Targeting penetration in high growth Tier II & Tier III
cities
• Improving Asset Quality
• Consistent Net Interest Margin
• Disbursement growth
Company Description
GIC Housing Finance Limited provides housing financing
services to individuals and corporate customers in India. It
grants housing loans to individuals and to persons/entities
engaged in construction of houses/flats for residential
purposes. GIC has presence in 27 locations across the
country for business. Moreover, it has tie-ups with
Constructors to offer finance to people. It also has tie-ups with
businesses for a range of housing finance requirements. The
company was formerly known as GIC Grih Vitta Limited and
changed its name to GIC Housing Finance Limited in
November 1993. GIC Housing Finance Limited was
incorporated in 1989 and is based in Mumbai, India.
Investment Rationale
High CAR Ratio
On CAR front, GICHF is the most adequately capitalised
company relative to its peers. The capital adequacy (CAR) for
GICHF is at 18% as against the minimum requirement of 15%
stipulated by National Housing Bank (NHB). While competitors
like LIC Housing Finance & Dewan Housing Finance CAR
ratio is 15% & 17% respectively.
Growth in Housing Sector
Residential housing accounts for almost 80% of the total
construction activities in India. According to the apex body of
housing finance, NHB, there is still shortage of more than 45
lacs residential units in India. NHB also stated that housing
sector is expected to grow at CAGR of 15% to 20% over next
few years. This leaves ample scope for the company to
increase its portfolio. Currently around 80% to 85% retail
houses are financed by the various lending institutions. In the
long run acute demand- supply shortage is expected to keep
real estate prices on the higher side. According to government
of India, the regions which will have high shortage include
western India and southern India. GIC is set to garner
synergies as majority of its current branch network is located
in western and southern India. Further, it plans to penetrate
more in the western region. We think that high demand- supply
gap is expected to drive prices of the real estate higher which
in turn will drive demand for housing finance.
Targeting penetration in high growth Tier II & Tier III cities
GICHF with its strong Brand image & network of 27 branches
across southern & western markets of India has been able to
penetrate Tier II & Tier III cities. To support future business
growth, the management has stated that it plans to expand in
western and southern region from current 27 branches to 47
branches by FY12. Branch addition in those regions having
high house shortages will further augment credit portfolio of
the firm.
Improving Asset Quality
GIC major focus on salaried class individual and that makes it
less vulnerable of NPAs and helps it to improve asset quality.
Gross NPAs stood at 3.4% in 3QFY11 as against 4.3% as on
3QFY10. Net NPAs are at 0.7% as against 2.2% for same
period. The asset quality has witnessed significant
improvement.
Consistent Net Interest Margin
Even during 2008-09 recessionary periods the company could
maintain NIM of more than 3.5% consistently. The margins are
expected to remain stable as most of the loan book comprises
of floating rate loans which aligns yield on advances with cost
of funds. Since the firm hardly relies on public deposit, it is
exempted from 24% SLR investments unlike other banks or
NBFC’s. Credit off take will remain robust on account of
exemption from SLR investments.
During the 3QFY11, GICHF reported margins of 2.94% in
3QFY11 against 3.02% reported in 3QFY10 and 3.31% in
2QFY11. While the yields on advances have declined during
the quarter, the cost of funds has gone up as a result of which
the margins were under pressure. Going forward as well in a
rising interest rate environment the cost of funds will increase.
Disbursement growth
GICHF has recorded robust business growth. Sanctions grew
by 33% YoY to `2.8 billion while disbursements were up by
28% YoY to `2.3 billion in 3QFY11. The target customers for
GIC are middle and lower middle-income borrowers. The
current focus of the company is on salaried and self-employed
segment. As a result, loan book increased 17% YoY to `33
billion.
Valuation
At CMP the stock is quoting at 1.3x and 1.1x P/BV for FY12E
and FY13E respectively which is relatively lower than the peer
group like LIC Housing finance and Dewan Housing. We
assume conservative P/BV as 1.35x for FY13E which brings to
a target of Rs. 135.
Concern
Rising interest rate scenario and slow down in demand.
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