Gruh Finance (GRHF) reported PAT of `1,104m (6% above our estimate) for Q4FY17, driven by strong loan growth, controlled operating expenses and lower provisioning charge. Loan growth for the quarter was a robust 19% y-o-y, driven by growth of 19% in housing loans and 37% in developer loans.
Home loan disbursements were up a robust 59% y-o-y in the quarter. This could be due to pent-up demand in the system, but we await management clarity. Disbursements to developers were up 93% y-o-y, which, was a one-off.
GRHF continues to scale back in LAP – disbursements were down 58% y-o-y, a trend similar to the prior quarter. Operating expenses declined 2% y-o-y to `241m, driven by a 13% fall in other operating expenses. We believe this is due to lower branch opening expenses.
As a result, C/I ratio declined 280bp y-o-y to 13%. GNPL ratio was largely stable at 0.31%. The company continued to maintain nil net NPLs (0.09% in Q4FY16). Provisioning charge stood at `14m v/s `61m in Q4FY16 and `327m in Q3FY17. GRHF took large provisioning charge in Q3FY17 in order to take PCR to 100%.
GRHF has performed impressively with 25% loan book CAGR and 26% PAT CAGR over the last decade. Its presence in the affordable housing segment in rural areas provides pricing power on the asset side with cost of funding at par with large HFCs. Yet, it has not compromised on underwriting standards with GNPL/ NNPL of 0.31%/nil (10- year average of 0.6%/nil). We upgrade our FY18E/19E EPS by 2%/5% led by better-than-expected loan growth and mix shift away from higher-risk assets like LAP. We upgrade our TP to `421 (9.5x FY19 P/B). Maintain Neutral.