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Dear Reader,
We are pleased to inform you that our Value Pick stock of Oct 2016 - GIC Housing Finance Ltd (BSE Code: 511676, NSE Code: GICHSGFIN) which was released on 14th Nov'16 is giving as on date returns of 52% to our Value Picks members in period of 5 months. Our team suggested Buy on GIC Housing at price of Rs. 291.45 on 14 Nov'16 with a target price of Rs. 425.
GIC Housing Finance has already achieved our target price, we suggest our members to continue to hold it. Stock made its 52 week high of Rs. 450.90 today and closed at Rs. 442.15 giving absolute returns of 52% to our Value Picks members in period of 5 months.
In Dec quarter, net profit of GIC Housing Finance rose 12.55% to Rs 34.43 crore as against Rs 30.59 crore during the previous quarter ended December 2015. Sales rose 13.87% to Rs 252.87 crore in the quarter ended December 2016 as against Rs 222.06 crore during the previous quarter ended December 2015.
Below is the summary of GIC Housing Finance Ltd shared by our team under Value Pick stock of Oct'16 released on 14th Nov 2016.
Note: This report is shared only for the purpose of information and not an investment advice. Kindly carry out your own due diligence in case of investment in GIC Housing Finance Ltd.
1.
Company Background:
GIC Housing Finance Ltd was incorporated
as 'GIC Grih Vitta Limited' on 12th December 1989. The name was changed
to GIC HousingFinance with a Certificate of Incorporation issued on
16th November 1993. The Company was formed with the objective of entering into
the field of direct lending to individuals and other corporate to accelerate
the housing activities in India. The primary business of GIC HousingFinance
is granting housing loans to individuals and to persons/entities
engaged in construction of houses/flats for residential purposes. The company
carried a vision for the future of Housing in India.
The company 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.
GIC Housing Finance
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.
GIC Housing Finance
is a small player in the Indian housing finance industry, with less
than 1% market share, and a loan book of Rs 7,910 crores as on March 31, 2016
(Rs 6600 crores as on March. 31, 2015). As per the report by CRISIL, its
advances are largely concentrated in 4-5 states, with Maharashtra accounting
for 59% of its loan portfolio as on March 31, 2016.
GIC Housing Finance portfolio
is skewed towards the salaried customers with average ticket size of around 15
lakhs, though in recent years the share of salaried customers is trending down
on account of increasing proportion of Loans against Property (LAP) given to
the self-employed borrower category in the portfolio. The company is doing so
to improve the average yield on advances as the margins are high compared to
the loans for purchase of homes. However, the portfolio continues to
remain dominated by the Home loans (about 84% of the portfolio as on March
2016) with LAP product constituting about 16% of the total portfolio as on
March 2016.
2. Financial Performance:
GIC Housing Finance standalone net profit rises 15.37% in the
September 2016 quarter
Net profit of GIC Housing Finance
rose 15.37% to Rs 34.37 crore in the quarter ended September 2016 as against Rs
29.79 crore during the previous quarter ended September 2015. Sales rose 14.66%
to Rs 246.96 crore in the quarter ended September 2016 as against Rs 215.38
crore during the previous quarter ended September 2015
GIC Housing Finance standalone net profit rises 14.41% in the
June 2016 quarter
Net profit of GIC Housing Finance
rose 14.41% to Rs 32.32 crore in the quarter ended June 2016 as against Rs
28.25 crore during the previous quarter ended June 2015. Sales rose 14.94% to
Rs 234.36 crore in the quarter ended June 2016 as against Rs 203.90 crore
during the previous quarter ended June 2015
3. Investment Rationale:
i) Government
initiatives like Housing-For-All by 2022 scheme in 2015 for the
rehabilitation of slum-dwellers and promotion of affordablehousing for the
urban poor. The target is to provide nearly 20 million houses over seven
years. This initiative 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 housingin
public-private partnership, credit linked subsidy for weaker sections and
subsidy for beneficiary led individual house construction.
ii) Despite the
double digit growth and the recent move by government to address key policy
bottlenecks, the housing finance industry in India remains
under-developed by global standards. The next couple of quarters are expected
to remain under pressure for real estate and can impact housing finance
sector in India on the back of major reform like Demonetization. However, we
firmly believe that it will give significant push to create conducive
environment for business in medium to long term. Moreover, housing finance
companies are likely to witness significant progress in coming years
considering Housing for All by 2022 scheme and Smart Cities Project.
iii) Increasing
urban population, lower mortgage penetration levels, increasing affordability
and moderation in the interest rates will enable HFCs to maintain their growth
momentum in loan disbursements. With the government's focus on providing housing for
all, GIC HousingFinance is well poised to benefit from these
regulatory announcements. Interest rate cut and strong growth potential is
expected to keep the company’s RoE and RoA firm in coming quarters. Positive
developments like allocating funds for low cost housings, increasing rebate onhousing loan
for self-occupied property tend to benefit HFCs including GIC Housing Finance
going forward.
iv) Till
FY12, GIC Housing Finance business growth was relatively slow
compared to other housing finance companies. Loan book grew by modest
13% CAGR in FY05‐12 with 31 branches. However the company started to achieve higher
growth from FY12 by taking some of important measures. Since FY12 the company
has doubled its branches (total branches now stands at 63) and its net interest
margins have expanded from lows of 2.9% to current NIMs of 3.50-3.6%. As a
result the net interest income of the company has recorded 23% CAGR since FY12.
v) Asset
quality for all housing finance companies is best in financial space
as housing finance companies provide financing largely to salaried
class people (baring few players like Repco which focus on non salaried class).
Strong domain knowledge and expertise in various business segments, coupled
with a proactive approach in credit selection and stress testing have
enabled GIC Housing Finance to have the best-in-class asset
quality.
vi) GIC Housing Finance
has shown significant improvement in its asset quality in last 5 years, the
asset quality of the company has improved with Gross NPA reducing to 1.76% at
the end of Mar’16 from 2.78% at the end of Mar’11. The Net NPA is NIL. Moreover
to minimize the risk, GIC Housing Finance has made it compulsory
for all the borrowers to opt for personal accident Insurance and mortgaged
property insurance. The Capital Adequacy Ratio of the Company as at 31st March,
2016 is 17.40% (Tier 1 Capital) as against 15.36% as at 31st March, 2015.
vii) During
last 3 years, the company has been focusing on reducing proportion of higher
cost bank borrowings. Bank borrowings of GICHousing Finance have come
down from 72% in FY14 to around 65% currently. NHB Borrowings have increased to
25% Vs 15% in FY15. Also, as per the management the company will consider
tapping bond markets and consider CPs (commercial paper) and NCDs
(non-convertible debentures). We believe that lower exposure to bank borrowings
and higher bond market penetration to further reduce its cost of funds will
augur well for the company, which in turn lead to higher margin growth.
viii)
Government thrust towards affordable housing and lower interest rate
cycle will benefit the company like GIC Housing Finance in
medium to long term. GIC Housing Finance continues to perform
well on growth, margins as well as on asset quality. The company aims to
increase the disbursements to low cost housing loans going forward,
which is likely to keep the margins firm. Moreover, the company has been
expanding its branches and has been sustaining 20% growth year on year. The
management intends to continue its expansion by opening new branches in
northern parts of India.
ix) GIC Housing Finance
has paid steady and consistent dividend to its shareholders since last 10
years. At CMP of Rs. 291.45, the dividend yield is 1.7%. The company has been consistently
paying out more than 20% of its earnings in the form of dividends.
x) At around
current price of 291.45, GIC Housing Finance is quoting at 2 times
book value and 11.8 times trailing twelve months earnings. The
valuation of the company looks attractive on both absolute and relative basis.
The other listed housing finance companies though with better growth
rates are trading in the range of 3 to 5 times book value.
4. Key Concerns & Risks:
i) Housing finance is a
regulated industry and in case of adverse change in provisioning or capital
adequacy requirements, the profitability of the company can get negatively
impacted.
ii) Real estate prices are key factor
in housing finance business as loan growth depends on property
market. Any significant correction in real estate prices can impact asset
quality of the company.
5. Saral Gyan Recommendation:
As per our estimates, GIC Housing Finance
can deliver PAT of 172 crores for full financial year 2017-18, annualized EPS
of Rs. 31.9 with forward P/E ratio of 9.1X for FY17-18 which makes it
attractively valued with dividend yield of 1.7% at current market price.
Considering
Government thrust towards affordable housing with rollout of
initiatives like Housing for All by 2022 scheme and Smart Cities
Project, expected improvement in the ROE of the company with healthy earnings
and improving leverage and increased thrust of management in growing loan book
led by branch expansion, Saral Gyan team recommends “Buy” on GIC Housing Finance
Ltd at current market price of Rs. 291.45 for target of 425 over a
period of 12 to 24 months.
Buying Strategy:
- 60% at current market price of 291.45
- 40% at price range of 240-265 (in case of correction in stock price in near term)
Portfolio Allocation: 3% of your equity portfolio.
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The stocks we reveal through Hidden Gems & Value Picks are companies that either under-researched or not covered by other stock brokers and research firms. We keep on updating our members on our past recommendation suggesting them whether to hold / buy or sell stocks on the basis of company's performance and future outlook.
Add power to your equity portfolio by investing in best of small and mid cap stocks - Hidden Gems and Value Picks. Its our mission to ensure that you reap the best returns on your investment, our objective is not only to grow your investments at a healthy rate but also to protect your capital during market downturns. Avail attractive discounts by subscribing out our combo packs, click here for details.
Do contact us in case of any queries, we will be delighted to assist you.
Wish you happy & safe Investing.
Regards,
Team - Saral Gyan
