GIC Housing Finance - Improvement signs visible... - Nirmal Bang

GIC Housing Finance is a small size housing finance company catering mainly to the middle and lower middle income customers with a ticket size of ~Rs 10-15 lakhs. It is more concentrated in the Western and the Southern India with 95% focus on salaried class. The company witnessed a muted growth in FY12 as the company was focusing on improving the quality of the book and the higher interest rates impacted the buying decision of the customers. With major improvements in place, and the interest rates showing signs of coming down, the overall demand for housing loans for GIC Housing have seen a significant revival.

- GIC Housing Finance reported good results for Q2FY13 with net interest income increasing 57% on YoY basis to Rs 43 cr. NIMs stood at 2.66% for the quarter as compared to 1.91% in Q2FY12.

- In addition provisions declined from Rs 10.5 cr in Q2FY12 to Rs 4.3 cr in Q2FY13 boosting the bottom line performance.

- PAT increased by whopping 149% from Rs 9.3 cr to Rs 23.15 cr.

- Asset quality improved with gross NPA coming down from 2.29% in Q1FY13 to 2.19% in Q2FY13.

- Going forward management targets to bring Gross NPA down below 2% mark resulting from continuous focus on collection efficiency and recoveries.

- Management is targeting a loan growth of 25% for FY13E and is witnessing good and balanced growth in its loan portfolio.

- As per the Management, FY13 is expected to be a good year both in terms of business loan disbursement and as well as in recoveries.

The company witnessed significant increase in disbursement in H1FY13 as compared to H1FY12 (growth of 32.6% YoY). There was some decline witnessed on sequential basis due to the inauspicious period of Adhik Maas which deferred the buying plans. Nevertheless, going forward with the onset of festive season and launching of various new schemes Management expects the disbursement growth to pick up in 2HFY13. With cost of funds showing signs of easing and asset quality under control, GIC Housing is all set to scale up on profitability. Led by the improving fundamentals of the company we believe that the return ratios of the company are set to improve. We expect RoE to improve to 17.1% (vs 12.3% in FY12 and RoA to improve to 2.0% (vs 1.5% in FY12) in FY13E still below the average RoE range of 18-20% and RoA range of 2.0-2.5%.

Based on our FY13E estimates, GIC Housing is trading at P/BV of 0.97x and P/E of 6.1x which we believe are attractive. With improving financials, GIC will command a higher multiple and we therefore recommend to BUY the stock at current levels and on decline for a target price of Rs 123 indicating an upside of 16.3% over the medium term.

Source : Equity Bulls

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