GIC Housing Finance - Diwali Picks - IndiaNivesh

GICHSG, incorporated in 1989 and promoted by General Insurance Corporation of India (GIC), is the housing finance company (HFC) providing finance to individual borrower and corporates for purchase or construction of residential houses. It has 31 branches spread across the country and markets its home loan products with the help of its direct selling agents and tie up with builders.

GICHSG's loan book and sanctioning has grown at CAGR of 16% and 17% to Rs 38.7 and Rs 10.7 bn respectively over FY10-12 while disbursements have FY10 gone up by 21% yoy to Rs 9.9 bn over the same period. In Q2FY13, loan book grew by 15% yoy to Rs 41.8 bn.

NIMs which came down to 3.5% in FY12 (due to spike in cost of funds), have started improving and stood at 4% in Q2FY13. We are expecting the Net interest income growth of 20% for FY12-14E and NIMs to stabilize at 3.6%.

In Q1FY13 and Q2FY13, the Net profit increased by 25% and 149% yoy to Rs 220 mn and Rs 232 mn respectively. We believe GICHSG is set to turn around and expect net profit to grow at CAGR of 21% for FY12-14E resulting in ROE and ROA of 16% and 1.6% as against 12% and 1.5% in FY12 respectively.

The company has shown a remarkable improvement in Asset quality with Gross and Net NPA of 2.08% and NIL in FY12, down from 2.78% and 0.41% in FY11.

Capital adequacy remains comfortable at 14.8% as against the regulatory requirement of 12% and it purely includes Tier I capital and doesn't hold any capital under Tier II category.

Valuation

We continue to remain positive on housing finance space and with in the space, GICHSG is one of our pick besides LIC housing finance given its consistent improvement in key metrics in last two quarters. Though margins have come off in FY12 due to continuous spike in cost of funds and lower disbursements/loan growth but it has started to pick up in last two quarters. We are building in loan book CAGR of 17% as against 16% for FY10-12 and sustainable NIMs (calc) of 3.6%.

At CMP of Rs 122, the stock is trading at P/ABV of 1.3x and 1.1x for FY13E and FY14E respectively. While the stock has moved up sharply by 24% / 42% in last 1 / 3 month (s), we believe there is still a room for upside and stock can demand a higher multiple due to 1) improvement in ROE to 16% as against 12% in FY12 and 2) lowest valuations compared to its peers. We recommend BUY on the stock with the target price of Rs 160 implying 1.5x FY14E ABV.

Source : Equity Bulls

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