GRUH Finance (GRHF) reported strong 4QFY18 results, with continued highteens loan growth, an improvement in margins and lower-than-expected operating expenses. However, higher tax expenses drove in-line PAT. Disbursements were up 20% YoY to Rs 1,510 crore for the quarter and up 28% YoY for the full year. Disbursement growth in the quarter was driven by home loans (+24% YoY) and developer loans (+33% YoY). Loan growth came in at 18% YoY/5% QoQ. The loan book stands at Rs 15,600 crore. Growth in the LAP book continues to decline (+13% YoY), while the NRP loan book continues to de-grow (-9% YoY). Calculated margins came in at 6.08% (+33bp YoY), led by lower cost of funds (-45bp YoY 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. The C/I ratio surprised us positively (down 300bp YoY to 10.1%). Opex declined 3.4% YoY and 7.1% QoQ to Rs 23.3 crore. 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).
The Indian Meteorological Department (IMD) released its first forecast for the 2018 southwest monsoon (June-September) rainfall. It expects monsoon rainfall at 97% of the long period average (LPA) with a model error of +/-5%. Earlier this month, Skymet, a private weather forecasting agency, had predicted southwest monsoon rainfall at 100% (with an error margin of +/-5%).IMD has assigned 54% probability to a normal to above normal rainfall. It believes that there is only 14% probability of a deficient rainfall. As per IMD, the moderate La Nina conditions (associated with good rainfall) developed in the equatorial Pacific during 2017 started moderating in early 2018 and have weakened further.