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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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CD Equisearch Pvt Ltd


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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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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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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.


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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


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


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


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


Growth Ratios (%)


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


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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Disclosure& Disclaimer CD Equisearch Private Limited (hereinafter referred to as ‘CD Equi’) is a Member registered with National Stock Exchange of India Limited,

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conflict of interest in the subject company(s).

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months.

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engaged in market making activity of the company covered by analysts.

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Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such

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Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading

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The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources

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any person from any inadvertent error in the information contained in this report. CD Equi has not independently verified all the information

contained within this document. Accordingly, we cannot testify nor make any representation or warranty, express or implied, to the accuracy,

contents or data contained within this document.

While, CD Equi endeavors to update on a reasonable basis the information discussed in this material, there may be regulatory compliance or

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