GIC Hsg Fin: Buy at CMP and add on dips; holding period of 2-3 quarters

HDFC Sec | Jan. 15, 2015, midnight


Company Background


GIC Housing Finance Ltd. (GHFL) was incorporated as ‘GIC Grih Vitta Limited’ in Dec 1989 (name changed to current in Nov 1993) with the objective of entering in the field of direct lending to individuals and other corporates to accelerate the housing activities in India. The primary business of GHFL is granting housing loans to individuals and to persons/entities engaged in construction of houses/flats for residential purposes. It was promoted by General Insurance Corporation of India and its erstwhile subsidiaries namely, National Insurance Company Ltd, The New India Assurance Company Ltd, The Oriental Insurance Company Ltd and United India Insurance Company Ltd together with UTI, ICICI, IFCI, HDFC and SBI, all of them contributing to the initial share capital. GHFL has presence in 63 branches across the country for business.


View and Recommendation


GHFL receives strong management, operational and financial support from its parent company i.e. General Insurance Corporation of India. Major portion of the advances are to relatively low risk salaried individual segment which alleviates NPA concerns to some extent. The company has strong capital adequacy ratio at 17.4% and NPAs are also improving gradually. With the management looking to diversify its sources of borrowing, its cost of finance is expected to come down and increasing share of LAP loans would lend support to NIMs expansion and return ratios. The company may see a shift in its strategy / focus / pace of growth, given the large scope of growth in the mortgage finance space, emerging competition and relatively slower growth on small base in the past, though the timing of this is uncertain at this point. This could also lead to a rerating of the stock as it is currently quoting at a steep discount to its peers in terms of P/ABV.

 

We feel investors could buy the stock at the CMP and add on declines to Rs. 276-290 band (~1.55x FY18E ABV) for sequential targets of Rs. 348 (1.90x FY18E ABV) and Rs. 375 (2.05x FY18E ABV) in 2-3 quarters.

 

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