GRUH Finance (GRHF) reported strong Q4FY18 results, with continued high-teen loan growth, an improvement in margins and lower-than-expected operating expenses. However, higher tax expenses drove in-line PAT. Disbursements were up 20% y-o-y to Rs 15.1 bn for the quarter and up 28% y-o-y for the full year. Disbursement growth in the quarter was driven by home loans (+24% y-o-y) and developer loans (+33% y-o-y). Loan growth came in at 18% y-o-y/5% q-o-q. Growth in the LAP book continues to decline (+13% y-o-y), while the NRP loan book continues to de-grow (-9% y-o-y). Calculated margins came in at 6.08% (+33bp y-o-y), led by lower cost of funds (-45bp y-o-y to 7.41%).
We believe cost of funds has bottomed out and should tick up from here. We have factored in 15bp spread compression in FY19. Opex declined 3.4% y-o-y and 7.1% q-o-q to Rs 233 mn. Asset quality was stable, with the GNPL ratio at 45bp v/s 31bp in Q4FY17. Valuation and view: GRHF has performed impressively, with 23% loan book CAGR and 20% PAT CAGR over the last decade.
At the same time, it has not compromised on underwriting standards, which reflects in the GNPL ratio of 0.5%. However, loan growth has slowed down meaningfully from the run-rate of ~25% two years ago. In addition, the future trajectory of spreads/ margins is uncertain, if GSec yields remain elevated. We marginally cut our FY19/20e estimates by 2/4% to account for some spread compression. Maintain Neutral with a target price of Rs 600 (12x FY20e BVPS).