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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
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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Company Profile
Incorporated as 'GIC Grih Vitta Ltd' on December 12, 1989, GIC Housing Finance changed its name via a fresh Certificate of
Incorporation in 1993. The company works in the area of offering loans on fixed and floating basis. Also, it offers flexi-fixed,
step up-down loans and mortgage loans. The company was formed with the objective of entering in the field of direct
lending to individuals and corporates to accelerate the housing activities in India. The primary business of GICHFL is
granting housing loans to individuals and to persons/entities engaged in construction of houses/flats for residential
purposes.
GIC Housing was promoted by General Insurance Corporation of India and its erstwhile subsidiaries namely, National
Insurance Company Limited, The New India Assurance Company Limited, The Oriental Insurance Company Limited and
United India Insurance Company Limited together with UTI, ICICI, IFCI, HDFC and SBI, all of them contributing to the
initial share capital.
GICHF has presence in 27 locations with 63 branches across the country for business. The company has got a strong
marketing team, which is further assisted by sales associates (SAs). It has tie-ups with builders to provide finance to
individual borrowers and also with corporates for various housing finance needs.
Source: GICHFL
Service Profile
In the current scenario, both banks and HFCs have been thriving on retail lending. Retail lending of banks includes various
types of retail residential mortgages, consumer credit cards, automobile and personal loans, loans against securities, and
small business loans. However, home loans constitute the largest percentage of retail loans in India.
The main business of GIC Housing is to provide long term finance to individuals for purchase, construction of house/flat for
residential purpose. It does not accept any public deposits. The home loan amount offered to individuals by GICHFL is
based on the amount of loan repayment that an individual can afford to make every month and on the percentage of the cost
of the property. The maximum tenure of the loan available is based on the age of the borrower at the time of application. The
age should not exceed 58-60 years for salaried employees and not exceed 65 years for self employed professionals. In order
to have the loan sanctioned, the salaried person must be of 21 years.
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Source: GICHFL
Themes to strengthen Housing in India
Source: KPMG “Housing for all by 2022”
Source: NHB
Investment Thesis
Government Initiatives
The Government has been at the forefront in encouraging India's housing
sector. The commitment to have “Housing for all by 2022” is the vision of
the new government dovetailing all affordable housing schemes and slum
redevelopment projects. To achieve this 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 development and
about 1.7 to 2 lakh hectare of land is required to fulfill urban housing
demand by 2022.
One of the main components of the Pradhan Mantri Awas Yojana mission
would be slum redevelopment. Under this, land will be pooled and then
given to a private real estate developer. Slum dwellers would be given flats
free of cost in multi-storey towers by the developer. Credit linked subsidy
scheme and interest subsidy will be given to the eligible beneficiaries
seeking housing loans. These beneficiaries of EWS and LIG would be
eligible for an interest subsidy at the rate of 6.5% for tenure of 15 years or
during tenure of loan whichever is lower. This will result in an assistance of
upto Rs. 2.3 lacs in the form of upfront reduction in loan amount. This
coupled with the fact that definitions of EWS and LIG have undergone a
change to include families with annual income upto Rs. 6 lacs augers very
well for housing finance sector especially companies within the sector
present in the affordable housing space.
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Many other initiatives and policies focused on lending for housing were also introduced in the recent past. An important step
was the inclusion of housing loans of up to Rs. 50 lakh under affordable housing in six main cities and Rs. 40 lakh in other
cities and bringing loans up to Rs. 28 lakh in metros and Rs. 20 lakh in other centers under priority sector lending. The
decision of the RBI to increase loan-to-value (LTV) ratio to 90% for loans up to Rs. 30 lakh is another positive step, which will
enable housing finance companies to lend more to lower middle income customers.
The Real Estate (Regulation and Development) Act, 2016 is expected to enhance transparency in the real estate sector and
boost the confidence of home buyers. It will also bolster domestic and foreign investment in the real estate sector and help
achieve the Government's objective to provide 'Housing for All' by enhanced private participation.
Housing Finance Industry
NBFCs have turned out to be the engines of growth and are an integral part of the Indian financial system, enhancing
competition and diversification in the financial sector. The housing finance industry has scripted a great success story in
recent years but it accounts for only 9% of our country’s GDP in FY16 which is much lower as compared to 20-30% in
Malaysia and China (See chart below). Such a situation in India is undoubtedly an opportunity for the Indian HFCs to
contribute more to the nation's GDP in the near future (mortgage penetration upto 16% by FY2021-22).
The launch of “Housing-For-All by 2022” scheme in 2015 ushered in a new era in the housing finance sector. It gave a much-
needed boost to the real estate and housing finance industry by creating an enabling and supportive environment for
expanding credit flow and increasing home ownership. Under this urban housing mission, the Indian government would
provide assistance ranging Rs 1 to 2.30 lakh per house under different components of the scheme including rehabilitation of
slum dwellers using land as a resource, promotion of affordable housing in public-private partnership, credit linked subsidy
for weaker sections and subsidy for beneficiary led individual house construction or enhancement
Source: ICRA Source: ICRA, RBI Source: NHB, RBI
According to ICRA, the total housing credit outstanding in India in FY16 was around Rs 12.5 trillion compared to Rs 10.5
trillion in FY15, which pinpoints a growth of 19%. Increasing disbursements on construction linked loans, growth in the small
ticket affordable housing segment and demand from Tier II/III cities and some increase in primary sales during the festive
season led to such robust growth in the last fiscal year. The home loan growth for small HFCs was seen at 36% in FY16 (37% in
FY15) (Source: ICRA) backed by increased focus on faster growing segments like affordable housing finance and the self-
employed borrower segments.
The focus of the housing finance companies is on the affordable housing segment. They are at the forefront in catering to the
financial needs of the under-banked masses in the rural and semi-urban areas through strong linkages with these segments.
Given the increasing penetration levels along with the government thrust on the affordable housing segment, opportunities
for growth seem to be high. Despite such likelihood to grow, the new players in this segment will face the challenge in the
form of limited access to funding sources. Even though NHB revised the interest spread caps upwards on funding under
Rural Housing Fund/Urban Housing Fund, it is still inadequate for the new players whose operating expenses would be
much higher.
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The year 2015 saw launch of new campaigns by HFCs to raise awareness about the home loans and innovative new products
for the customers in the low income bracket. Keeping customer benefit and convenience in mind, HFCs added special features
to their products such as the ‘Over-Draft’ facility, enabling borrowers to earn optimal yield on their savings by reducing
interest burden on home loans. With the recent notification by the Finance Ministry, 41 housing finance companies are now
approved under The Securitization and Reconstruction of Financial and Enforcement of Security Interest Act (SARFESAI)
which is a significant step towards bringing HFCs at par with banks by enabling speedier loan recovery. One may also witness
closer coordination between NHB and RBI to regulate, develop and meet the capital requirements of HFCs so that the purpose
of disbursing finance at affordable rates for housing can be achieved instead of just growing outstanding loan book.
Other key growth drivers
India's housing sector has a strong growth potential in the coming decade. The growth is expected on the back of India's
significant development cycle and socioeconomic transformation.
Rising Disposable Income: It has been observed that there has been an increasing movement of households into higher
income categories. The number of households with annual income less than Rs. 1 lakh was approximately 53% of total
population in FY14 compared to approximately 63% in FY09. The number of households with an annual income between Rs. 2
lakh and Rs. 5 lakh has increased by a CAGR of 9% between FY09 and FY14. In addition, the number of households with
annual income exceeding Rs. 5 lakh has increased by a CAGR of 8% in the same period. The positive correlation between the
household disposable income and housing demand will provide a great opportunity for the housing finance companies to tap
the market vigorously as it will make the home loans more affordable (Data source: Dewan Housing).
Rapid Urbanization: As per the industry estimates, India’s urban population will rise to 40% of the total by 2030 from the
present 31%. With the metropolitan areas getting over populated, more people are willing to reside in suburbs where peace
prevails. In order to keep meeting the consumer demands, more builders are developing projects in suburban areas. Such a
situation can result to be a growth indicator for the HFCs, as more people are exposed to the need of adequate home loans.
Others: With property prices remaining at unaffordable levels in Tier-I cities and metros, Tier-II and Tier-III cities have
emerged as new avenues for growth. Employment opportunities, affordable property prices, and availability of finance have
emerged as strong drivers for an increasing number of people to migrate from smaller towns and rural areas to Tier-II and
Tier-III cities. This has led to a huge growth in disbursements for HFCs and gives them the opportunity to witness faster
growth than banks in such segments.
HFCs have been able to grow its market share in the steadily expanding housing loans market. This high demand growth is
driven by reduction in interest rates compressing the gap between effective housing loan rates, after tax benefits and rental
yields making house purchase increasingly compelling in comparison to renting (especially in Tier-II cities).
Source: RBI Source: UN DESA, 2014, Dewan Housing Source: Indiabulls
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Loan portfolio
While demand for the home loans has been conducive, GICHFL, catering to mainly lower to middle income group class, has
grown its loan book at a CAGR of 18.3% over the period FY11-16. Aggressive branch expansion in the north and east (mainly in
tier-II cities) and galvanizing channel partners (DSAs bring 80% of the business), has helped GICHFL to grow its loan portfolio to
Rs 7912 crs ($1189.2m) in FY16 (Rs 6598 crs/$991.7m in FY15), delivering a growth of 19.9%, tad lower from 24.2% logged in FY15.
GIC identifies markets where there is high demand and limited competition which has enabled it to open 63 branches till now-
another opening shortly in Mangalore.
Thanks to the increasing exposure to the high yielding LAP portfolio (yield of 12-13% vs 9.65% for other loans), margins have
somewhat surged in the last fiscal. The company hopes to continue achieving benefits from the growing LAP portfolio which
comprises 16.1% of its total book in FY16- Rs 1272 crs ($191.2m) compared to 9% in FY15. Though LAP promises higher yield to
the company, it can be risky (big-ticket loans can be delinquent with changing NPA norms). To mitigate some risks, GIC provides
loans for only 60% of the property value restricting itself to retail borrowers with sound credit profile. The focus mainly lies on
smaller borrowers with average ticket size of Rs 15 lakhs.
Source: GICHFL, CD Equisearch Source: GICHFL, CD Equisearch Source: GICHFL, CD Equisearch
Though the zeal lies on the credit traction, disbursement grew by just 12.9% to Rs 2511 crs ($377.4m), while the loans approved
during the year amounted to Rs 2636 crs ($396.2m), a growth of 14.4%. The disbursements have been growing at a steady pace in
the last few years (CAGR of 26.1% in FY12-16), though it also saw some pitfalls. FY12 saw a disbursement growth of flimsy 2.4%
due to slowdown in real estate and high interest rate scenario. With reliance on suburbs where demand for homes is high,
offsetting the lower demand in the west, the disbursement numbers are expected to grow by 16-17% in the next two years.
GICHFL persist on increasing the share of high yielding non-core portfolio, mainly targeting on the 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.
Optimizing cost of funds
Dependence on term loans from banks, insurance companies and NHB refinance as sources of borrowing is what kept GICHFL at
odds compared to its peers. In the year FY16, it raised funds aggregating to Rs 7001 crs ($1052.3m) compared to Rs 5794 crs
($870.9m) in FY15, a growth of 20.8%- well complementing its loan book growth. GICHFL availed Rs 1000 crs ($150.3m) from
NHB in FY16 bringing up its share of the total borrowing basket to 23.3% vs 14.9% in FY15. Cheap financing from NHB at a
subsidized rate of 8.7% brought down the proportion of bank borrowings from 72% to 67.2% last fiscal.
Fresh loans borrowed from the banks decreased from Rs 1404 crs ($211.0m) in FY15 to Rs 1343 crs ($201.9m) in FY16 which was
borrowed at 9.2-9.4%. To keep a check on the cost of funds, the company has also started to reckon on other alternatives like
commercial papers (8.1% of the total basket) and NCDs which costs 8.5-9%. It brought down its cost of funds by 35 bps to 9.4% in
FY16 (9.7% in FY15). This helped the HFC to expand its interest spread by 19 bps to 2.7%. Reliance on such cheaper source of
financing will help GICHFL to curtail its cost of funds to some 9% and sustain the interest spread at 2.6-2.7% in the next two
years.
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Source: GICHFL, CD Equisearch Source: GICHFL, CD Equisearch Source: GICHFL, CD Equisearch
Asset Quality
For housing finance companies, the asset quality has remained quite congenial in the recent years with GNPA at 0.73% in
FY16 (Source: ICRA). Negative amortization has increased the gross bad loans for GICHFL and made it surpass the
industry. The GNPA ratio stood at 1.8% in FY16 compared to 1.7% in the previous year while the Net NPA continues to
stand at NIL from FY12. Provisions to the extent of Rs 15.76 crs ($2.4m) were made last year (Rs 12.28 crs/$1.8m in FY15)
with almost the entire provisioning done on the bad loans in the non housing portfolio. Despite asset quality recovering
from FY11 when GNPA stood at 2.8% and Net NPA at 0.4%, the portfolio vulnerability still prevails with increased focus on
riskier products like LAP/non housing portfolio, lower income group customers and gradual increase in dependence on non
salaried class (nearly 30% at the end of Q1FY17).
Source: GICHFL, CD Equisearch Source: GICHFL, CD Equisearch Source: GICHFL
Financials and Valuation
Focus on core retail business helped GICHFL to notch net interest income of Rs 256.63 crs ($38.6m) last fiscal compared to
Rs 207.05 crs ($31.1m) in FY15. The robust growth of 23.9% spells out the potential of the company to consistently lower its
average cost of funds- sustaining its margins. It witnessed NIM of 3.5%, showing an improvement of 6 bps y-o-y last year.
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%).
Tight control on the operating costs over the years has brought down GICHFL’s cost to income ratio by 87 bps to 25.0% in
FY16 (25.8% in FY15). This helped the company to register a growth of 20.9% in its bottom line- PAT of Rs 124.50 crs
($18.7m) in FY16 vs Rs 102.96 crs ($15.5m) in FY15. Relaxation in NHB norms with lower risk weights supports well for the
company. GICHFL improved its CAR ratio to 17.4% last fiscal (15.4% in FY15) which was well above the requirement of
12% laid down by NHB.
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Source: GICHFL, CD Equisearch Source: GICHFL, CD Equisearch Source: GICHFL, CD Equisearch
It’s essential for the company to bring down its operating cost with growing asset base. Presently, cost to income ratio
stands higher than companies like LIC Housing and Can Fin Homes. Increasing book size may be able to absorb some of its
cost and stabilize the ratio at 25-25.2% in the next two years. The aggregate gearing levels remained at around 9.6 times in
FY16; however some HFCs had a stretched capitalization with gearing levels over 11-12 times, owing to their higher pace of
growth in comparison to their internal capital generation and lower external equity infusion. Owing to the increase in the
profitability of the company, the return ratios like ROE jumped to 17.9% last fiscal from 16.2%, while ROA was maintained
at the level of 1.7%. Going ahead, we expect the profits to rise by 21.2% in FY17 to Rs 150.90 crs ($22.7m) and by 19.4% in
FY18 to Rs 180.16 crs ($27.1m). ROE is also expected to move up sharply by 174 bps to 19.6% this year, while ROA will flat
line at 1.7-1.8%.
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.
Source: GICHFL, CD Equisearch Source: GICHFL, CD Equisearch Source: GICHFL, CD Equisearch
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Risks and Concerns
Slowdown in Real Estate Sector
Adverse developments in the real estate sector causing delay and default in completion of projects may cause a setback to
disbursement of new loans. With pressure on both the demand and supply side, residential real estate has gone into a vicious
cycle of ever increasing cost, falling demand, liquidity crunch and, delay in approvals adding to the woes of the developers.
Margins Pressure
Lending is the main activity of housing finance companies requiring maximum prudence on the part of lending financial
institutions. Inflationary trends, increased cost of borrowings, narrowing down of margins and intense competition pose big
challenge for sustaining profitability on a consistent basis. With interest rates declining and the home loan sector facing declining
asset quality, HFCs could face pressure on margins. The volatile macroeconomic environment- change in government and
regulatory policies (like change in NPA norms by NHB, etc) may affect the performance of the company. Also, a fluctuation in
interest rates makes housing finance institutions more vulnerable to certain risks such as credit risk, liquidity risk, and interest
rate risk.
Stiff Competition
Spurt in competition, coupled with an intense fight for market share between HFCs and Commercial Banks within the same
space can heighten the risk profile with aggressive underwriting standards. The share of HFCs in the housing finance sector has
decreased from 50.8% in FY01 to about 37% in FY16. Over reliance on aggressively disbursing loans as an easier option to build
book size, and squeezing margins to undesirable levels are other areas of possible threats. Moreover, with the new methodology
(MCLR) that has come into effect from April 1, 2016, the ability to hold on to higher base rates by banks despite RBI slashing
rates will be curtailed.
Cross Sectional Analysis
Company Equity* CMP Mcap* NII* Profit* NIMs (%)
Loan Book growth(%)
ROE (%)
ROA (%)
P/E P/BV
LICHF 100.9 593 29932 3150 1687 2.6 15.4 19.0 1.4 17.7 3.1
Gruh 72.7 334 12153 441 253 4.2 23.7 30.6 2.3 47.9 13.6
Dewan 313.0 296 9259 1727 757 2.6 20.0 15.3 1.2 12.2 1.8
Repco 62.6 830 5190 322 159 4.5 25.5 17.4 2.2 32.6 5.2
GICHF 53.9 331 1782 270 129 3.6 19.2 17.7 1.7 13.9 2.3
Can Fin 26.6 1682 4478 329 175 3.3 28.3 20.2 1.6 25.7 4.8
*figures in crores; calculations on ttm basis .
Source: Company, CD Equisearch Source: Company, CD Equisearch Source: Company, CD Equisearch
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Financials
Quarterly Results Figures in Rs crs
Q1FY17 Q1FY16 % chg. FY16 FY15 % chg.
Net Interest Income 68.73* 55.50* 23.8 256.63 207.05 23.9
Non Interest Income 3.87 5.58 -30.6 19.09 16.76 13.9
Total Income 72.60 61.08 18.9 275.72 223.81 23.2
Operating Expenses 17.04 13.50 26.2 68.85 57.83 19.1
Pre-Provision Profits 55.56 47.58 16.8 206.87 165.98 24.6
Provision 6.00 3.98 50.8 15.76 12.28 28.3
PBT 49.56 43.60 13.7 191.11 153.70 24.3
Tax 17.24 15.35 12.3 66.61 50.74 31.3
PAT 32.32 28.25 14.4 124.50 102.96 20.9
Basic EPS (F.V.10) 6.00 5.25 14.4 23.12 19.12 20.9
Equity 53.85 53.85 - 53.85 53.85 -
*approximation
Income Statement Figures in 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
Total Income 205.67 223.81 275.72 337.69 403.78
Operating Expenses 47.65 57.83 68.85 85.00 101.21
Pre-Provision Profits 158.02 165.98 206.87 252.69 302.58
Provision 24.76 12.28 15.76 21.43 26.47
PBT 133.26 153.70 191.11 231.27 276.11
Tax 35.71 50.74 66.61 80.37 95.95
PAT 97.55 102.96 124.50 150.90 180.16
Basic EPS (F.V.10) 18.12 19.12 23.12 28.02 33.46
Equity 53.85 53.85 53.85 53.85 53.85
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Balance Sheet Figures in Rs crs
FY14 FY15 FY16 FY17e FY18e
Sources Of Funds 5518.12 6720.67 8021.38 9370.46 10949.08
Shareholders’ Funds 610.48 660.37 731.80 805.73 947.01
Share Capital 53.88 53.88 53.88 53.88 53.88
Reserves and Surplus 556.60 606.49 677.92 751.85 893.13
Non Current Liabilities 3818.98 4560.65 5728.89 6754.78 7985.89
Long Term Borrowings 3630.07 4359.05 5510.75 6514.61 7718.58
Long Term Provisions 188.91 201.60 218.14 240.17 267.31
Current Liabilities 1088.66 1499.65 1560.69 1809.95 2016.17
Short Term Borrowings 468.02 644.75 618.56 742.17 916.58
Trade Payables 5.15 4.66 6.67 8.43 10.06
Other Current Liabilities 577.00 813.68 897.30 1017.13 1042.85
Short Term Provisions 38.49 36.56 38.16 42.22 46.68
Application of Funds 5518.12 6720.67 8021.38 9370.46 10949.08
Non- Current Assets 5158.53 6366.26 7611.77 8899.53 10427.87
Tangible Assets 5.21 2.62 2.16 2.53 3.14
Capital Work in Progress - - - - -
Non-Current Investments 9.93 9.83 9.80 9.80 9.80
Long Term Loans and Advances 5072.99 6314.77 7588.37 8924.57 10460.37
Other Non Current Assets 10.00 1.44 - - -
Deferred tax asset (net) 60.40 37.60 11.44 -37.38 -45.44
Current Assets 359.59 354.41 409.61 470.93 521.21
Trade Receivables 9.67 9.41 12.13 14.56 17.47
Cash and Cash Equivalents 89.90 41.57 52.34 63.11 66.14
Short term loans and advances 259.35 303.43 345.14 393.27 437.59
Other Current Assets 0.67 - - - -
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Cash Flow Statement Figures in Rs crs
FY14 FY15 FY16 FY17e FY18e
Net Profit (a) 97.55 102.96 124.50 150.90 180.16 Non cash expenses & others (b) 16.70 16.42 20.14 27.71 33.28
Depreciation 2.05 3.51 0.82 0.83 0.89
Provision for NPA 24.76 12.28 15.76 21.43 26.47
(Profit)/Loss on sale of investments -1.32 -1.52 -1.93 -2.04 -2.14
Net Deferred tax asset -8.79 2.14 5.50 7.50 8.06
Others - 0.01 -0.01 - - Adjustments in NWC & others (c ) -775.95 -1222.00 -1311.45 -1379.59 -1577.28
Trade receivables -0.42 0.26 -2.72 -2.43 -2.91
Loans and advances -777.85 -1285.86 -1315.31 -1384.33 -1580.12
Other assets -4.58 9.23 1.44 - -
Bank deposits (maturity more than 3 months) 9.88 51.11 -1.59 1.97 -
Trade payables 1.48 -0.49 2.01 1.76 1.63
Provisions 0.19 3.86 2.39 1.42 1.91
Other liabilities -4.65 -0.11 2.33 2.02 2.22 Net Cash flow from Operations (a+b+c) -661.70 -1102.62 -1166.81 -1200.98 -1363.84
Purchase of fixed assets -0.92 -0.95 -0.36 -1.20 -1.50
Sale of fixed assets 0.07 0.03 - - -
Net Investments 1.32 1.62 1.96 2.04 2.14
Net Cash Flow from Investing activities (d) 0.47 0.70 1.60 0.84 0.64 Net borrowings 678.96 1142.50 1206.80 1245.28 1401.88
Dividends paid(including CDT) -31.50 -37.80 -32.41 -32.41 -35.65
Net Cash flow from Financing activities (e) 647.46 1104.70 1174.39 1212.87 1366.23
Net change (a+b+c+d+e) -13.77 2.78 9.18 12.74 3.04
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Key Financial Ratios
FY14 FY15 FY16 FY17e FY18e
Growth Ratios (%)
Net Interest Income 15.5 9.1 23.9 22.7 20.1
Total Income 13.8 8.8 23.2 22.5 19.6
Pre Provision Profits 12.9 5.0 24.6 22.2 19.7
Net Profit 14.7 5.5 20.9 21.2 19.4
EPS 14.7 5.5 20.9 21.2 19.4
Loan Book 17.0 24.2 19.9 17.5 17.0
Return Ratios (%)
ROE 16.8 16.2 17.9 19.6 20.6
ROA 1.9 1.7 1.7 1.7 1.8
Return on loan assets 2.0 1.7 1.7 1.8 1.8
Margins (%)
Cost To Income Ratio 23.2 25.8 25.0 25.2 25.1
Net Interest Margin (% of Loan Book) 3.9 3.5 3.5 3.7 3.8
Asset Quality (%)
Gross NPA 1.6 1.7 1.8 1.9 1.7
Net NPA - - - - -
Provision on Housing loans 3.7 3.2 2.7 2.4 2.3
Provision on Non housing loans 1.1 1.2 2.1 2.5 2.7
Valuation Ratios
P/BV 1.0 1.8 1.8 2.2 1.9
P/E 6.0 11.6 10.7 11.8 9.9
Other Ratios
Debt / Equity 7.6 8.8 9.6 10.2 10.2
Current Ratio 0.3 0.2 0.3 0.3 0.3
Dividend payout Ratio 38.7 31.5 26.0 23.6 21.6
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Cumulative Financial Data
Rs crs FY04-06 FY07-09 FY10-12 FY13-15 FY16-18e
NII 110 258 336 561 950
Pre-provision profits 77 237 296 464 762
PBT 77 219 228 400 698
PAT 62 164 171 286 456
Dividends 17 69 91 102 107
Loan Book* 1727 2696 3872 6598 10877
Loan disbursements* 373 601 992 2225 3407
Total debt* 1585 2478 3595 5794 9648
NII growth (%) 129.3 134.0 30.3 66.8 69.4
Pre-provision profit growth (%) 215.0 208.7 24.9 56.6 64.3
Loan Book growth (%) 106.3 56.2 43.6 70.4 64.9
Disbursement growth (%) 26.1 61.2 65.1 124.2 53.2
Cost to Income (%) 43.5 15.9 21.1 24.0 25.1
NIM (%) 2.9 3.9 3.4 3.6 3.6
ROE (%) 17.6 22.0 13.5 16.4 18.9
ROA (%) 1.5 2.4 1.6 1.7 1.7
Debt-equity* 10.8 7.1 7.2 8.8 10.2
Dividend payout ratio (%) 27.2 42.4 37.9 35.6 23.5
FY04-06 implies three years period ending FY06 *as at terminal year.
Promising sector trends and boost to the HFCs on account of rapid urbanization will enable GICHFL’s loan book to
increase more than six fold in FY18 compared to the book size at the end of FY06. The loan book is expected to grow by
64.9% in the period FY16-18e from the period FY13-15, continuing its focus on maintaining the housing share of
portfolio. GIC’s main thrust on increasing the individual loan portfolio in the period FY13-15 led to a massive jump in
disbursement to 124.2% from FY10-12. Sharp jump in the average cost of funds in FY12 (9.3% vs 7.5% in FY11) explains
the massive slowdown in the growth of net interest income in the period FY10-12 (30.3%). Stable interest spread in the
period FY16-18e will help NII to multiply by 2.8x to Rs 950 crs ($142.8m) from Rs 336 crs ($50.6m) in the period FY10-12.
Also, higher operating expenses incurred in FY11 (growth of 44%) pushed up the cost to income ratio to 21.1% in the
period FY10-12. The struggle in the same period was also explained by the NIM- down by 48 bps (3.4% vs 3.9% in FY07-
09) and ROE where the decline was 854 bps (13.5% vs 22.0% in FY07-09). With the continuous support from NHB and
other sources of financing, GICHFL is expected to stabilize its NIM to 3.6% in the period FY16-18 and also show an
improvement in the ROE to 18.9% as against 16.4% in the period FY13-15. For the period FY16-18e, the PAT is expected
to climb up by 59.5% to Rs 456 crs ($68.5m) from Rs 286 crs ($42.9m) in the previous three year period.
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Financial Summary – US dollar denominated
million $ FY14 FY15 FY16 FY17e FY18e
Equity capital 9.0 8.6 8.1 8.1 8.1
Shareholders’ funds 101.6 105.5 110.3 121.1 142.3
Total debt 774.0 925.7 1055.4 1239.4 1450.1
Total loans and advances 887.2 1057.4 1196.0 1400.5 1638.0
Investments 1.7 1.6 1.5 1.5 1.5
Net current assets -121.3 -183.0 -173.5 -201.3 -224.7
Total assets 918.2 1073.7 1209.3 1408.4 1645.7
Net Interest Income 31.4 33.9 39.2 47.3 56.9
Pre-provision Profits 26.1 27.1 31.6 38.0 45.5
PBT 22.0 25.1 29.2 34.8 41.5
PAT 16.1 16.8 19.0 22.7 27.1
EPS($) 0.30 0.31 0.35 0.42 0.50
Book value ($) 1.89 1.96 2.05 2.25 2.64
Operating cash flow -110.1 -176.2 -175.9 -180.5 -205.0
Investing cash flow 0.1 0.1 0.2 0.1 0.1
Financing cash flow 107.7 176.5 177.0 182.3 205.3
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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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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