GRUH?s PAT has CAGR of 31% over the last 10 years. Hereon, broadening of customer base and geographic diversification will bring in scale benefits through lower operational costs, which will in turn translate to greater traction in net profits.
GRUH is available at 16x/12x FY11/FY12E EPS and 5.4x/4.3x FY11/FY12E ABV. We believe, current valuations will roll over the next year owing to strong parentage and high quality predictable growth, which brings in an upside potential of 25% over the next year.
Recommend ACCUMULATE with target of R508. (15xFY12e EPS and 5.2xFY12eBV) in 12 months. GRUH Finance (a subsidiary of HDFC holding about 61%) provides housing finance to customers in deeper geographical pockets in semiurban and rural areas. Between FY08-11, GRUH?s disbursals and loan book have grown 38% and 34% respectively.
We expect GRUH to register a 23% growth in its loan book and 24% CAGR in PAT during FY11-13. Liquidity in money markets has remained tight, which significantly raised wholesale funding costs over recent months. However, GRUH has managed its NIM in excess of 4.5%, despite rising interest rates.
We believe that, it will be able to maintain the current NIMs going ahead too as about 95% of its loan book is on variable rate. GRUH?s asset quality is one of the best among housing finance companies. The net NPAs are nil for the last five consecutive years. Loan loss provisions have been in the range of 0.1% – 0.7% of advances.
Its provisions for standard assets are more than required even after recent increase in requirements by NHB. GRUH has increased its dividend every year over the last 10 years with payout ratio at about 33%. It has declared dividend of R11 during FY11, which offers a dividend yield of about 3% at current prices.
Motilal Oswal