maverick
22-11-2007, 06:10 AM
Gruh Finance-Blue Pedigree, Strong Growth Ahead
BSE 511288; CMP Rs 160
With a 40 per cent annualized growth in after tax profits, zero NPAs, a CAR of 16 per cent and a 61.5 per cent ownership of HDFC Ltd, Gruh is one of the most attractively placed housing finance institutions as a pure investment idea.
As a 61.5 per cent subsidiary of HDFC-the biggest housing finance institution in the country, Gruh Finance is set to record strong growth over the coming months. Though there always exists the possibility of a merger with HDFC, the quality of names who own the Gruh stock is unsurpassed.
These include HSBC (5.01 per cent), Merrill Lynch ( 3.34 per cent), the Och-Ziff owned Hedge Fund Acacia Partners (1.76 per cent), Tata Investment corporation (1.44 per cent) and the National Housing Bank (1.24 per cent), leaving a mere 14 per cent float with the public.
While the corporate continues to reach across and draw funds from its premier shareholders and the National Housing Bank, Gruh is perhaps the only housing finance company in the country with ZERO NPAs.
Against the mandated Rs 3.7 crore worth of provisions as per the mandated RBI norms, this institution has made NPA provisions of Rs 19 crore, thereby suppressing its profits by an equivalent amount and to that extent the Rs 9.4 in EPS recorded in FY07 is lower by atleast 50 per cent and to that extent the stock needs to quote much higher from the present levels.
Financials
Gruh's first half performance has been flat with Revenues at Rs 87 crore and after tax profits of Rs 11.5 crore. Considering the peculiar nature of recording Revenues the maximum profits are reported in the Q4, as financial contracts expire. This is confirmed by FY07 Revenues of Rs 145 crore and after tax profits of Rs 29.6 crore. For FY08 Gruh should substantially exceed FY08 Revenues, Profits and Earnings Per Share.
Twelve new offices have been opened by Gruh in the contiguous states of Gujarat, Maharashtra, Karnataka, Rajasthan and MP raising the total number of Retail Offices under its domain to 74. These States also happen to be one of the most prosperous for carrying out housing loan disbursements, with near default rates while assuring quantum growth. In a way Gruh fulfills the limitations that HDFC Ltd as a large institution possesses in terms of reaching out to Retail customers over a very large spread of area. The businesses of the two institutions complement and sustain each other.
Industry Overview
FY08 has continued to witness a property boom and rising property prices, despite the increase in risk weights from 125% to 150% for financing of commercial properties. Even the monetary measures initiated in the form of increases in the Reverse Repo Rate and Cash Reserve Ratio by the Reserve Bank of India, have not been able to check credit growth. Offlate interest rates have begun to come down making finance more affordable to the borrowers and signifying a peak in interest rates has been achieved.
The housing shortage continues to be high in the country and especially in rural areas, it is expected that the demand for housing and home loans in urban areas will continue to rise faster as a result of the increased urbanisation in the country. Not only have the metro cities witnessed rising population, but even Tier I and Tier II cities have been experiencing similar.
A Strong Balance Sheet
GRUH's Capital Adequacy Ratio as at March 31, 2007 was 16.31% as against NHB's prescribed limit of 12%. The Capital Adequacy on account of Tier I Capital was 13.03% while the Capital Adequacy on account of the Tier II Capital was 3.28%.
Key Elements of the Profit and Loss Account as of March 31st 2007
-ハProfit before tax grew by 41% and profit after tax by 37%
-Current year income tax provision amounted to Rs. 9 crores as compared to Rs. 6.50 crores in the previous year. The effective income tax rate for the year is 24%.
-ハPre-tax return on average assets improved to 2.81% in the current year as compared to 2.56% in the previous year. Post-tax return on average assets improved to 2.25% as compared to 2.12% in the previous year.
-ハReturn on average networth (on the expanded equity) for the year was 23.58%.
-ハRatio of net interest margin to average assets improved to 3.96% in the current year as compared to 3.51% in the previous year.
-ハGRUH's cost to income ratio was 25% for the year ended March 31, 2007 as against 29% in the the previous year.
-ハRatio of non-interest expenses to average assets was 1.11% as at March 31, 2007 as against 1.19% in the previous year.
-ハThe Earning Per Share (Basic) increased to Rs. 9.40 in the current year from Rs. 7.36 in the previous year.
BSE 511288; CMP Rs 160
With a 40 per cent annualized growth in after tax profits, zero NPAs, a CAR of 16 per cent and a 61.5 per cent ownership of HDFC Ltd, Gruh is one of the most attractively placed housing finance institutions as a pure investment idea.
As a 61.5 per cent subsidiary of HDFC-the biggest housing finance institution in the country, Gruh Finance is set to record strong growth over the coming months. Though there always exists the possibility of a merger with HDFC, the quality of names who own the Gruh stock is unsurpassed.
These include HSBC (5.01 per cent), Merrill Lynch ( 3.34 per cent), the Och-Ziff owned Hedge Fund Acacia Partners (1.76 per cent), Tata Investment corporation (1.44 per cent) and the National Housing Bank (1.24 per cent), leaving a mere 14 per cent float with the public.
While the corporate continues to reach across and draw funds from its premier shareholders and the National Housing Bank, Gruh is perhaps the only housing finance company in the country with ZERO NPAs.
Against the mandated Rs 3.7 crore worth of provisions as per the mandated RBI norms, this institution has made NPA provisions of Rs 19 crore, thereby suppressing its profits by an equivalent amount and to that extent the Rs 9.4 in EPS recorded in FY07 is lower by atleast 50 per cent and to that extent the stock needs to quote much higher from the present levels.
Financials
Gruh's first half performance has been flat with Revenues at Rs 87 crore and after tax profits of Rs 11.5 crore. Considering the peculiar nature of recording Revenues the maximum profits are reported in the Q4, as financial contracts expire. This is confirmed by FY07 Revenues of Rs 145 crore and after tax profits of Rs 29.6 crore. For FY08 Gruh should substantially exceed FY08 Revenues, Profits and Earnings Per Share.
Twelve new offices have been opened by Gruh in the contiguous states of Gujarat, Maharashtra, Karnataka, Rajasthan and MP raising the total number of Retail Offices under its domain to 74. These States also happen to be one of the most prosperous for carrying out housing loan disbursements, with near default rates while assuring quantum growth. In a way Gruh fulfills the limitations that HDFC Ltd as a large institution possesses in terms of reaching out to Retail customers over a very large spread of area. The businesses of the two institutions complement and sustain each other.
Industry Overview
FY08 has continued to witness a property boom and rising property prices, despite the increase in risk weights from 125% to 150% for financing of commercial properties. Even the monetary measures initiated in the form of increases in the Reverse Repo Rate and Cash Reserve Ratio by the Reserve Bank of India, have not been able to check credit growth. Offlate interest rates have begun to come down making finance more affordable to the borrowers and signifying a peak in interest rates has been achieved.
The housing shortage continues to be high in the country and especially in rural areas, it is expected that the demand for housing and home loans in urban areas will continue to rise faster as a result of the increased urbanisation in the country. Not only have the metro cities witnessed rising population, but even Tier I and Tier II cities have been experiencing similar.
A Strong Balance Sheet
GRUH's Capital Adequacy Ratio as at March 31, 2007 was 16.31% as against NHB's prescribed limit of 12%. The Capital Adequacy on account of Tier I Capital was 13.03% while the Capital Adequacy on account of the Tier II Capital was 3.28%.
Key Elements of the Profit and Loss Account as of March 31st 2007
-ハProfit before tax grew by 41% and profit after tax by 37%
-Current year income tax provision amounted to Rs. 9 crores as compared to Rs. 6.50 crores in the previous year. The effective income tax rate for the year is 24%.
-ハPre-tax return on average assets improved to 2.81% in the current year as compared to 2.56% in the previous year. Post-tax return on average assets improved to 2.25% as compared to 2.12% in the previous year.
-ハReturn on average networth (on the expanded equity) for the year was 23.58%.
-ハRatio of net interest margin to average assets improved to 3.96% in the current year as compared to 3.51% in the previous year.
-ハGRUH's cost to income ratio was 25% for the year ended March 31, 2007 as against 29% in the the previous year.
-ハRatio of non-interest expenses to average assets was 1.11% as at March 31, 2007 as against 1.19% in the previous year.
-ハThe Earning Per Share (Basic) increased to Rs. 9.40 in the current year from Rs. 7.36 in the previous year.