CMP (NSE) 15:49, 28 Sep
Last updated on
08 Jun, 2017
GIC Housing Finance (GICHF) will see a decent growth in its loan book led by government’s focus on affordable housing. GICHF’s focus on the low income group (LIG) customer segment makes it the key beneficiary of the government schemes. More than 50% of its loan book is comprised of <15 lakh ticket size loans. Given its lower ticket size customer profile, GICHFL is poised to avail the opportunity of Credit Linked Subsidy Scheme (CLSS) under Pradhan Mantri Awas Yojna (PMAY). Looking at the affordable housing potential, we expects its loan book to register ~25% CAGR over FY17-19E to ~Rs14,500 cr. Moreover, increasing branch network (5-10 branches/year), expansion in its field force, government interest subsidy scheme on housing loan, falling interest rates and lower housing penetration will aid its loan book growth immensely. Its capital adequacy ratio presently stands at ~17%, which is well above the 12% minimum required level prescribed by the National Housing Bank (NHB), is quite comfortable to exploit the growth opportunity in affordable housing.
Focus on low cost sources of funds & high yield loans to boost NIMs
GICHFL intends to decrease its high cost bank borrowing (~67% of total funds). It has been proportionately increasing the share of cheaper source of funds like, commercial paper and NHB refinancing. We expect its high cost borrowing weightage in total funds to decline by ~17% to ~50% over FY17-19E. The infra status to affordable housing would also indirectly help the company to access lower cost funding, mainly from the NHB. In addition, we believe its share of high yield LAP loans of the total loans will increase by 290 bps to 19% over FY17-19E. We believe that the decline in bank borrowing and increasing share of LAP will boost its NIMs by ~21 bps to ~3.7% over FY16-19E.
Outlook & Valuation
Strong potential in loan book growth, improving LAP share in total loans and inclination towards lower cost of funds will improve its NII. We forecast net profit CAGR of ~32% over FY17-FY19E to ~Rs 258 cr. Given these positives, we value the stock at 2.7x on FY19E P/BV. We have a BUY rating on the stock with the target price of Rs 714 over next 12 months.
|Net interest income||207||257||332||440||537|
|Total net operating income||224||276||348||457||557|
|Pre- provision profit||166||207||241||329||412|
|EPS Growth (%)||6||21||19||38||26|
Source: Company, IIFL Research
Snapshot of the company
GIC housing Finance Limited (GICHFL) is one of the leading housing finance companies in India with a loan book of ~Rs9,200 cr by FY17 end. The Housing Loan & LAP contributes ~83% & ~17% respectively to the company’s loan book. It has a very strong presence in the Western region with ~45% of the total branches in Mumbai & Suburban regions, while rest ~55% of the branches are situated in the South, North and the the East regions. GIC’s customer profile comprises low-risk loans, where the Salaried class constitutes ~77% of the total loans and Self Employed & Non Professionals contribute ~23% of the loans. The company primarily caters to the Lower Middle Income (LMI) group, with an average ticket size of ~Rs15 lakh in Housing Loan and ~Rs12 lakh in the Loan Against Property (LAP) category. Its loan book grew by ~20% over FY12-FY17. Its GNPA ratio as of March FY17 stands at ~2.33% while it has nil Net NPA, as it provides for 100% provisioning against GNPA.
FY17 Loan Book Share
Housing Finance companies comparison on EPS CAGR % & P/BV(x)
Based on FY19E P/BV(x) and FY17-19E earnings CAGR, GICHF is attractively placed, which comforts our view.