S t o c k I d e a Date: 28-Dec -12 CMP: `126 TARGET: `189 Upside: 50% B U Y SENSEX 19445 NIFTY 5908 Eq. Cap. (` Crs) 53.85 Face Value (`) 10.0 M. Cap (` Crs) `679 BSE Code 511676 NSE Code Financial Year GICHSGFIN Apr-Mar 52-w H/L 131/68 Avg. Daily Vol. 50,228 TTM EPS (`) 14.36 TTM P/E (x) 8.8x BVPS (`) 100.71 P/BVPS (x) 1.25x Stock vs. Sensex Latin Manharlal Securities Pvt Ltd. 124 Viraj, S,V.Road, Khar (W), Mumbai 400 052 www.latinmanharlal.com GIC HOUSING FINANCE LTD. (GICHFL) Incorporated in 1989, GIC Housing Finance Ltd (GICHFL) - a subsidiary of General Insurance Corporation of India - is engaged in the housing finance activity. The primary business of GICHFL is granting housing loans to individuals and to persons/entities engaged in construction of houses/flats for residential purposes. GICHFL has presence in 37 locations (32 Business Centers & 5 Collection centers) across the country for business. RBI's ECB booster to low-cost housing: A Big Positive The RBI has allowed real estate developers and housing finance companies to raise up to $1 billion through ECBs in the current fiscal to promote low cost housing projects. ECBs are considered attractive as cost of raising the loan overseas is lower than that of domestic borrowings. Besides, they provide an additional avenue to access large amounts of funds from global financial markets. Thrust continues to be on Individual loans Entire loan portfolio of GICHFL is of Retail Loans, with housing loans accounting for almost 99%. Majority of its lending and borrowing portfolio (~99%) is on floating rate basis. The company mainly targets 95% salaried class of which 99% are first time borrowers. Strong growth in Disbursement + Steady growth in Loan Book GICHFL s loan book and sanctioning has grown at CAGR of 16% and 17% to Rs.3864 Crs and Rs.1073 Crs respectively over FY10 12 while disbursements have gone up by 21% Y-o-Y to Rs.992 Crs over the same period. During 1HFY13 the company has seen a disbursement growth of 32.8% Y-o-Y to Rs.621.8 Crs. The company management has guided that it would maintain at least 25% growth over the next 2 quarters with stable NIMs. Significant improvement in Asset quality: Zero Net NPA There has been considerable improvement in asset quality over last few years for GICHFL. The gross NPA ratio has come down from 5.9% in FY05 to 2.1% currently. The net NPA ratio has decreased from 1.6% in FY10 to ZERO in FY12. Robust 2QFY13 Result: current NIM to be sustainable going forward GICHFL s net profit rose 148.9% to Rs 23.2 Crs in 2QFY13 as against Rs.9.3 Crs during the previous quarter ended September 2011. Sales rose 30.3% Y- o-y to Rs 135.8 Crs in 2QFY13 as against Rs 104.2 Crs reported in 2QFY12. The Net Interest Margin (NIM) for 2QFY13 was at 2.66% v/s 2.60 (Q-o-Q) with spread of 1.5%. Management expects these NIM's to be sustainable going forward. Maintaining the CAR above the minimum required level The company has been maintaining the CAR above the minimum required level prescribed by NHB (12% currently) from time to time. The CAR of the company at the end of FY12 stood at 14.8%. Positive Management Guidance Plans to expand its branch network from present 38 locations across India (as on Sept 30, 2012) to 41 by end of March FY13E. Net interest income growth of 20% for FY12 14E and NIMs to stabilize at 3.6% Targets to bring Gross NPA down below 2% mark At the CMP of `126, the stock is trading at 1.25x P/BVPS and 8.8x its TTM EPS of `14.36. We recommend BUY on the stock with a 12-18 months revised target price of `189, providing an upside of 50% from the current levels. Please Refer DISCLAIMER on the Last Page
Company Profile Presence in 37 locations (32 Business Centers & 5 Collection centers) across the country Incorporated in 1989, GIC Housing Finance Ltd (GICHFL) - a subsidiary of General Insurance Corporation of India - is engaged in the housing finance activity. GICHFL was formed with the objective of entering in the field of direct lending to individuals and other 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. GICHFL has presence in 37 locations (32 Business Centers & 5 Collection centers) across the country for business. It 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. It also has tieups with corporates for various housing finance needs. The Company was promoted by General Insurance Corporation of India and its erstwhile subsidiaries namely, National Insurance Company Ltd, The New India Assurance Company Ltd, The Oriental Insurance Company Ltd and United India Insurance Company Ltd together with UTI, ICICI, IFCI, HDFC and SBI, all of them contributing to the initial share capital. Revenue Model 2.8% 0.7% Income Break-Up: FY2012 Major business is concentrated in Western and Southern India (~90%) Interest Earned Fees & Other Charges Profit on Sale of Inv. 96.5% GICHFL major business is concentrated in Western and Southern India (~90%), being the regions with high loan growth potential. The West Zone, mainly Maharashtra and Goa, contributes 55% of the total loan book. The South Zone accounts for 35% of the loan book. Entire loan portfolio of GICHFL is of Retail Loans, with housing loans accounting for almost 99%. Majority of its lending and borrowing portfolio (~98-99%) is on floating rate basis. Average tenure of its loan book is ~12 years, and of its borrowings is ~9 years. Its customer focus is Middle-class and Lower-middle income borrower with an average ticket size of loans of Rs 10-15 lakhs. GICHFL mainly targets 95% salaried class of which 99% are first time borrowers. GIC Hosuing Finance Ltd. 2 28-Dec-2012
INVESTMENT POSITIVES RBI's ECB booster to low-cost housing: A Big Positive The Reserve Bank of India (RBI) has allowed real estate developers and housing finance companies to raise up to $1 billion through external commercial borrowings (ECBs) in the current fiscal to promote low cost housing projects. The funds raised through ECBs could be used either for developing low cost housing projects or for providing loans up to Rs25 lakh to individuals for buying units with a price tag of Rs.30 lakhs or less. Besides developers, the central bank said housing finance companies (HFCs)/National Housing Bank (NHB) can also raise ECBs for financing prospective owners of low cost, affordable housing units. ECBs are considered attractive as cost of raising the loan overseas is lower than that of domestic borrowings. Besides, they provide an additional avenue to access large amounts of funds from global financial markets. As per the guidelines, developers/builders with a minimum track record of 5 years in undertaking residential project will be eligible to raise ECBs. The initiative follows the announcement made by the government to promote low cost affordable housing in the Budget for 2012-13. On the recent decision of market regulator Sebi to allow mutual funds to have extra 10% exposure to HFCs, would diversify the sources of funding for housing finance companies, which would have a positive impact on loan pricing. We believe all these recent positive developments along with no major change in regulation expected in near term are likely to benefit HFCs going forward. Thrust continues to be on Individual loans Loan book and sanctioning has grown at CAGR of 16% and 17% respectively over FY10 12 The Company s main thrust continues to be on individual loans. New loans approved during FY12 amounted to Rs.1073 Crs and loans disbursed during the year are Rs.992 Crs as against Rs.1069 Crs and Rs.969 Crs for the year ended 31st March, 2011 respectively. The Retail Loan portfolio as at 31st March, 2012 stood at Rs.3864 Crs, (reflecting a growth rate of 13.45%) as compared to Rs.3406 Crs as on 31st March, 2011. Strong growth in Disbursement + Steady growth in Loan Book After showing an increase in disbursement at 44.0% in FY11, GICHFL showed a moderation in disbursement growth in FY12 (up 2.4% Y-o-Y) on the back of slowdown and increasing focus on improving the book quality. However, from 4QFY12 disbursements started to gain momentum. GICHFL s loan book and sanctioning has grown at CAGR of 16% and 17% to Rs.3,864 Crs and Rs.1,073 Crs respectively over FY10 12 while disbursements have gone up by 21% Y-o-Y to Rs 992 Crs over the same period. GIC Hosuing Finance Ltd. 3 28-Dec-2012
FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 Rs. in Crs 1,200 1,000 800 600 Reported nearly 35% growth in sanctions and disbursals during 2QFY13 400 200 - Sanctions Dis-bursements During 1HFY13 the company has seen a disbursement growth of 32.8% Y-o-Y to Rs.621.8 Crs. In 2QFY13, the company has witnessed some moderation in disbursements over Q1FY13 on the back of inauspicious period of Adhik Maas, which led the customers to defer their buying plans. However, we expect the growth rate in disbursement to improve in 2HFY13 with the launching of various new schemes and festive season. In 2QFY13, loan book grew by 15% Y-o-Y to Rs 41.8 bn. The company has reported nearly 35% growth in sanctions and disbursals during 2QFY13 and it expects strong growth to continue in Q3 and Q4. The company management has guided that it would maintain at least 25% growth over the next two quarters with stable NIMs. Significant improvement in Asset quality: Zero Net NPA There has been considerable improvement in asset quality over last few years for GICHFL. The gross NPA (Non Performing Assets) ratio has come down from 5.9% in FY05 to 2.1% currently. Net NPA ratio has decreased from 1.6% in FY10 to ZERO in FY12 The net NPA ratio has decreased from 1.6% in FY10 to ZERO in FY12. GICHFL is well capitalized and CAR stood at 14.8% after FY12 with Tier I capital equal to 14.8%. The company so far has not written off any NPA. Robust 2QFY13 Result: current NIM to be sustainable going forward GICHFL s net profit rose 148.9% to Rs 23.2 Crs in 2QFY13 as against Rs.9.3 Crs during the previous quarter ended September 2011. Total income rose 30.3% Y-o-Y to Rs 135.8 Crs in 2QFY13 as against Rs 104.2 Crs reported in 2QFY12. The company has reported ~35% growth in sanctions and disbursals during 2QFY13. The growth was seen mainly from the peripherals of the Mumbai city along with from South regions in Hyderabad, Chennai and Bangalore. Also regions in Delhi, Gurgaon and Noida are seeing good pickup in demand. GIC Hosuing Finance Ltd. 4 28-Dec-2012
Management expects the current NIM to be sustainable going forward The company has also tied up with some builders near Panvel (Navi Mumbai). The management is expecting the uptick in demand to continue and see the growth to be 25% in Q3 & Q4. The Net Interest Margin (NIM) for 2QFY13 was at 2.66% v/s 2.60 (Q-o- Q) with spread of 1.5%. Management expects these NIM's to be sustainable going forward. On the asset quality front, GICHFL seen some improvement, gross NPA's were at 2.20% v/s 2.30% (Q-o-Q). Maintaining the CAR above the minimum required level The Company has been maintaining the Capital Adequacy Ratio (CAR) above the minimum required level prescribed by National Housing Bank (NHB) from time to time. The CAR prescribed for the present is 12%. The CAR of the company as at 31st March, 2012 is 14.80% as against 15.42% as at 31st March, 2011. 24.0% Capital Adequacy Ratio (%) 22.0% 21.6% 20.0% 18.0% 17.7% 18.0% 16.0% 15.4% 14.8% 14.0% 12.0% 10.0% FY08 FY09 FY10 FY11 FY12 While the CAR has declined, it is still at comfortable levels, above the 12% requirement. The management has indicated its intentions of raising capital but not in the near term. Peer Group Comparison In terms of P/BVPS, GICHFL is trading at a discount to LIC Housing Fin & Gruh Finance In terms of P/BVPS, GICHFL is trading at a discount to LIC Housing Fin & Gruh Finance, while it trades at a premium to Dewan Housing & Can Fin Homes. On a positive side, GICHFL has the highest dividend payout ratio & dividend yield among its peers. Listed Peers M.Cap Loan Book TTM EPS P/BVPS Avg Yield on Avg Cost of P/E (x) Div. Yield (` Crs) (FY12) (`) (x) Loans (FY12) Fund (FY12) LIC Housing Fin. 14,584 63,080 21.05 13.7 2.4 1.3% 10.4% 9.1% Dewan Housing Fin. 2,077 19,355 29.97 5.9 0.9 2.0% 13.0% 10.5% Gruh Finance 4,165 4,077 7.51 31.2 9.5 1.0% 13.1% 9.9% Can Fin Homes 309 2,634 25.00 6.0 0.8 2.0% 11.6% 9.3% GICHFL 657 3,864 14.36 8.5 1.2 3.7% 11.2% 9.3% GIC Hosuing Finance Ltd. 5 28-Dec-2012
FY'00 FY'01 FY'02 FY'03 FY'04 FY'05 FY'06 FY'07 FY'08 FY'09 FY'10 FY'11 FY'12 Rs. in Crs We expect GICHFL to continue to trade at a discount to LIC Housing Fin (due to large scale operations) & Gruh Finance (due to parental support of HDFC). However, we believe GICHFL deserves to trade at better valuations than what it currently trades due to its high dividend payouts & dividend yield (enjoys highest), superior asset quality (NIL Net NPAs), and declining cost to income ratio. 35.0 60% Plans to expand its branch network from present 38 locations to 41 by end of March FY13E 30.0 25.0 20.0 15.0 10.0 Avg Dividend Yield at 7.3% over FY2000-12 50% 40% 30% 20% 5.0 10% 0.0 0% Dividend (Amt) Dividend (%) The company has also indicated its intentions of increasing its branch network at a faster pace over the next couple of years which would enable it to improve its growth in disbursements going forward. We expect the company to continue to reward its shareholders with consistent and healthy dividend payouts going forward. Positive Management Guidance Would maintain at least 25% growth in sanctions and disbursals over the next two quarters with stable NIMs. We feel that is achievable, given the expected moderation in the interest rates over the next few months and the company s plans to expand its branch network over the next two years. Plans to expand its branch network from present 38 locations across India (as on Sept 30, 2012) to 41 by end of March FY13E and to increase further in FY14E. Net interest income growth of 20% for FY12 14E and NIMs to stabilize at 3.6%. Targets to bring Gross NPA down below 2% mark resulting from continuous focus on collection efficiency and recoveries CONCERNS Rising interest rate scenario and slowdown in demand. GIC Hosuing Finance Ltd. 6 28-Dec-2012
VALUATIONS At the CMP of `126, the stock is trading at 1.25x P/BVPS and 8.8x its TTM EPS of Rs.14.36. We recommend BUY on the stock with a 12-18 months revised target price of `189, providing an upside of 50% from the current levels. Source: Company, Capitaline Registered Office: 124 Viraj, S,V.Road, Khar (W), Mumbai 400 052. Tel. (022) 4082 4082, Fax (022) 2649 7997. research@lmspl.com www.latinmanharlal.com, LMSPL Network: Fort, Mahalaxmi, Parel, Bandra, Santacruz, Vile Parle, Andheri, Malad, Kandivili, Borivali, Bhayender, Ghatkopar, Mulund, Chunabhatti, Jacob Circle, Masjid Bunder, Cotton Green, Thane, Bhiwandi, Panvel, Pune, Sholapur, Nasik, Malegoan, Ahmednagar, Aurangabad, Akola, Mahekar, Nagpur, Surat, Karjan(Baroda), Khambat, Ahmedabad, Rajkot, Surendranagar, Porbandar, Amreli, Bharuch, Anand, Chennai, Vishakhapatnam, Vizianagaram, Palasa, Kakinada, Karnal, Kolkatta, Bhubhaneshwar, Hyderabad, Bangalore, Jafrabad, Chital, Kodinar, Keshod, Gondal, Haryana, Srikakulam, Mehkar (Buldhana, Jamnagar, Bangalore, Jodhpur, Jalgaon, Malkangiri (Orissa), Karimnagar Dist. (Andhra Pradesh) This document is for information only and is meant for the use of the recipient & not for circulation. The information contained in this document has been taken from publicly available information, trade and statistical services & other sources. While the information contained herein is from sources believed to be reliable, we do not hold ourselves responsible for its completeness and accuracy. All opinions and estimates included in this report constitute our judgement as of this date and are subject to change without notice. Investors are expected to use the information contained in this report at their own risk. This report is not and should not be construed as an offer or the solicitation of an offer to buy or sell any securities. M/s Latin Manharlal Securities Pvt. Ltd. and its affiliates may act as market maker or have assumed an underwriting position in the secure-ties of companies discussed herein and may sell them to or buy them from customers on a principal basis. GIC Hosuing Finance Ltd. 7 28-Dec-2012