Pick of the Week

RETAIL RESEARCH

26 Sep 2016

GIC Housing Finance Ltd

Industry

CMP

Recommendation

Add on Dips to band

Sequential Targets

Time Horizon

BFSI

Rs. 313

Buy at CMP and add on dips

Rs. 276-290

Rs. 348-375

2-3 quarters

HDFC Scrip Code

GICHOUEQNR

BSE Code

511676

NSE Code

GICHSGFIN

Bloomberg
CMP as on 23 Sep 16

GICHF IN
312.55

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.

Eq. Capital (Rs crs)

53.85

Investment Rationale

Face Value (Rs)

10.00

Equity Sh. Outs (Cr)

5.39

Market Cap (Rs crs)

1683.12

Book Value (FY16 Rs)

135.82

Avg. 52 Week Vol

160000

52 Week High

337.50

52 Week Low

179.00

Shareholding Pattern-% (Jun-2016)

Promoters

42.25

Institutions

15.84

Non Institutions

41.91

Total
Research Analyst: Atul Karwa

atul.karwa@hdfcsec.com

100.00

Asset book to grow at 18-19% CAGR

Expanding reach to achieve growth
Asset quality improving gradually
Increasing contribution of LAP loans will lead to better margins
Controlling finance costs to improve spreads and augment margins
Attractive financial metrics
Attractive valuation compared to peers

Concerns

Slowdown in real estate sector

Highly concentrated in the western part of India
Asset quality risks
Rising competition from banks and peer companies
High cost-income ratio compared to peers
Regulatory changes

Financial Summary
Rs in Cr
NII
PPP
PAT
EPS (Rs)
P/E (x)
P/ABV (x)
RoAA (%)

Q1FY17
72.1
55.6
32.3
6.0

Q1FY16
60.4
47.6
28.3
5.2

YoY (%)
19.4
16.8
14.4
14.4

Q4FY16
77.9
57.2
35.9
6.7

QoQ (%)
-7.4
-2.9
-9.9
-9.9

FY15
207.1
166.0
103.0
19.1
16.4
2.6
1.7

FY16
256.6
206.9
124.5
23.1
13.5
2.3
1.7

FY17E
304.5
248.3
151.2
28.1
11.1
2.0
1.7

FY18E
356.6
289.9
176.3
32.7
9.6
1.7
1.7

(Source: Company, HDFC sec)

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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.
Q1FY17 Result Review
Interest income grew by 14.9% yoy to Rs 234.4 cr. Interest expenses increased at a slower pace of 13.1% yoy to Rs 162.3 cr
resulting in 19.4% increment in net interest income to Rs 72.1 cr. Operating expenses were up 26.2% to Rs 17 cr on back of
higher employee cost and other branch opening related expenses. Company made a provision of Rs 6 cr against Rs 4 cr in
Q1FY16. Net profit was up 14.4% to Rs 32.3 cr. Disbursement increased 15% yoy to Rs 626 cr.
Particulars
Interest Income
Interest Expenses
Net Interest Income
Non-interest income
Total Income
Operating Expenses
Pre Provisioning Profit
Provisions & Contingencies
PBT
Tax
PAT
EPS

Q1FY17
234.4
162.3
72.1
0.5
72.6
17.0
55.6
6.0
49.6
17.2
32.3
6.0

Q1FY16
203.9
143.5
60.4
0.7
61.1
13.5
47.6
4.0
43.6
15.4
28.3
5.2

YoY (%)
14.9
13.1
19.4
-25.0
18.9
26.2
16.8
50.8
13.7
12.3
14.4
14.4

Q4FY16
233.1
155.2
77.9
0.4
78.3
21.1
57.2
2.2
55.0
19.1
35.9
6.7

QoQ (%)
0.5
4.5
-7.4
34.2
-7.2
-19.1
-2.9
169.1
-9.9
-9.8
-9.9
-9.9

(Source: Company, HDFC sec)

Company Overview
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
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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
It has got a strong marketing team, which is assisted by Sales Associates (SAs). It has tie-ups with builders to provide finance
to individual borrowers. It also has tie-ups with corporates for various housing finance needs.
GIC Housing Finance has picked up 11.7% stake in LIC MF for ~Rs. 17 cr in May 2016 post the exit of Nomura, which was
holding 35% in LIC-Nomura MF.
Loan book breakup (ticket size)

(Source: Company, HDFC sec)

Key company milestones

Year
Milestone
1989
Company was incorporated with the name GIC Grih Vitta Limited.
1989-91
The Company started its operations from 8 locations.
1991-92
The Company launched Employee and Builder Scheme Housing Scheme.
1993-94
The Company made a rights issue of 1:1; the capital crossed the Rs. 10 cr mark.
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1994-95
2003-04
2004-05
2006-07
2007-08
2010-11

The company made its maiden IPO and mobilized additional capital of Rs. 40 cr.
Crossed Rs. 500 cr annual business in individual housing loan and the total portfolio crossed Rs. 1000 cr.
Rights issue in the ratio 1:2; Paid-up capital increased to Rs 26.93 cr
Rights issue in the ratio 1:1; Paid-up capital increased to Rs 53.86 cr
Individual Loan portfolio crossed Rs.2000 cr during the year
Crossed Rs. 1000 cr annual business in individual housing loan and the total portfolio crossed Rs. 3000 cr.

Shareholding Pattern (June 2016)

(Source: Company, HDFC sec)

Investment Rationale
Asset book to grow at 18-19% CAGR
The asset book of the company grew at a conservative pace of ~13% during FY05-12 with 31 branches. Post FY12 the
company has started focussing on increasing its asset book and delivered high teen growth rates matching the top players
in the industry. Outstanding advances have grown at CAGR of 18.3% over FY12-16. The company has also strategically
doubled its branch network from 31 in FY12 to 60 at the end of FY16 and has 63 branches currently. With the aggressive
branch expansion we expect GHFL to grow at CAGR of 20% over the next couple of years.

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Growth in Advances

(Source: Company, HDFC sec)

Expanding reach to achieve growth

GHFL has become aggressive in opening branches and increasing its reach to tap new customers. It is looking to open 6-7
branches every year and in the last four years it has doubled its network to 63 branches. Earlier the company was primarily
present in the west, but it has expanded in the north-east in the last two years. It concentrates on incentivising the channel
partners which bring in ~80% of the business. GHFL spends very less on branches as it relies on smaller branches of 400-500
sq. ft and hiring just 2-3 people to start with. GHFL identifies markets and open branches in places where there is relatively
high demand and limited competition. For instance, it has consciously focused on Mumbai suburbs beyond Borivali and
Thane. This ensures higher growth for the company.
Asset quality improving gradually
GHFL has historically concentrated on salaried class customers who account for ~80% of its book. As there is evidence of
steady income the risks involved are lower. Although this creates competition with banks, GHFL try to counter this through
aggressive marketing with DSAs, ease of sanction, value-added services like free accident and home policies and other
measures like developing partnership with the local bodies and institutions to help procure business. Concentration of
salaried class of customers has enabled the company to maintain a health NPA profile. While the gross NPA levels are
declining, the company has made full provisions and has had NIL NNPAs since FY12.

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Gross NPAs are gradually declining

(Source: Company, HDFC sec)

Increasing contribution of LAP (non housing loans) will lead to better margins
Share of loans against property (LAP) or non-housing loans has been increasing in GHFLs portfolio. As against 10-11% yield
on a pure home loan, LAP can return close to 12-13%. Contribution of non-housing loans has increased from 2.1% in FY12 to
17.8% in FY16. Due to its increasing exposure to the latter, GIC makes close to 11.7% yield on its advances as against the
average cost of funds at 8.2%.
Share of Non-Housing loans have increased from 2.1% in FY12 to17.8% in FY16

(Source: Company, HDFC sec)

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Although LAP loans promises higher yields, it can be risky. To mitigate some of the risks, GHFL has been providing loan for
only 60% of the property value besides restricting itself to retail borrowers with sound credit profile. The properties are also
assessed by independent property valuers for proper and unbiased valuation.
Controlling finance costs to improve spreads and augment margins
Lending is all about the spread or the difference between the cost of borrowing and yield on loans. While GHFL has been
dependent on bank borrowings, it is looking to gradually improve it. Banks account for ~70% of its borrowings at ~9.3-9.4%
(base rate or close to base rate) while another 20% is accounted by National Housing Bank at a subsidized rate of 8.65%.
This results in a blended cost of ~9.2%. With the company lending at ~9.65% the margins are very thin. It is maintaining a
spread of ~2.4% due to older fixed costs loan at 12% and higher yields from LAP loans. The management is looking to
reduce its borrowing costs by 1) repaying high cost debt through raising at MCLR 2) aggressively increasing the share of NHB
borrowing which is ~80bps cheaper than banks borrowing 3) capital infusion by promoters as preferential capital and is
also looking opportunity to increase the borrowing from money market.
Yield on Advances, Cost of Borrowing and NIM trend

(Source: Company, HDFC sec)

Backing of parent like GIC and other FIs gives credibility to GHFL helping it to attract borrowers from the lower to middle
class.
Attractive financial metrics
GHFL has maintained its capital adequacy ratio (CAR) well above the regulatory requirement of 12% prescribed by NHB. At
the end of FY16 its CAR stood at 17.4% composed entirely of Tier-I capital. It is well capitalized to grow for the next 2-3
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years without raising any equity. Dividend yield of the company has ranged between 1.5-2% over the last few years. Gross
NPAs stood at 1.76% which have been fully provided. RoNW improved to 17.9% in Fy16 as compared to 16.2% in FY15 and
we expect it to increase further in the coming years. The stock is trading at an attractive valuation of 1.7x of its FY18E ABV
which is lower than its peers.

Industry Overview
Low mortgage penetration
In India, mortgage to GDP ratio stands at 9% well below the developed economies like US and UK mortgage to GDP ratio of
81% and 88% respectively. Even certain emerging economies such as Thailand (17%) and China (20%) have a far higher
mortgage ratio as compared to India. This lower mortgage penetration implies huge opportunity for growth going forward.
As per BCG/IBA report, the estimated outstanding mortgage in India is set to increase manifold by 2022 to cross nearly 20%
of India's GDP.
Mortgage to GDP ratio of various countries (%)

(Source: HDFC Ltd presentation, HDFC sec)

Huge shortage in urban and rural housing:

Census 2011 figures reveal that the housing stock has increased form 24.9 crore in 2001 to 33.1 crore in 2011, indicating a
growth of 33 per cent. However, housing shortage is posing a challenge, since there is a mismatch between the people for
whom the houses are being built and those who need them. As per the estimated housing shortage for 2012-17, urban area
have about 95% shortage in economically weaker sections and lower income group categories, whereas rural areas have
about 90% shortage in below poverty line category.
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Urban Housing
Category
Shortage (mn)
Economically Weaker Section
10.55
(EWS)
Lower Income Group (LIG)
7.41
Middle Income Group (MIG)
0.82
Total
18.78

% to Total
56.2
39.4
4.4
100.0

Rural Housing
Category
Shortage (mn)
Below Poverty Line (BPL)
39.30
Above Poverty Line (APL)

4.37
43.67

% to Total
90.0
10.0
100.0

(Source: NHB, HDFC Sec)

The trend of migration from rural to urban is likely to continue. Indias urban population has grown at a CAGR of 2.8% over
2001-2011, resulting in an increase in the urbanization rate from 28% to 31.1%. The rising population in urban areas has
created huge shortage of urban housing in India. According to Ministry of Housing and Urban poverty alleviation (MHUPA),
of the total urban housing shortage, 80% (14.99 mn) of these households are living in congested houses requiring new
houses. Thus large shortage of urban and rural housing offers immense growth opportunity going ahead. According to a
survey by UN State of the World Population report in 2007, by 2030, 40.76% of country's population is expected to reside in
urban areas.
Urban population to total population (%)

(Source: Crisil, HDFC sec)

Rising affordability to create demand push for housing

House prices have increased at a very nominal rate over the last few years. However average annual income of the
consumers has increased at a faster rate. Increasing working population has reduced the average age of the work force,
with higher aspiration levels leading to rising standards of living, matched with sufficient purchasing power. Affordability
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index measures populations ability to purchase a particular item such as house, and is indexed to the populations income.
Improving economic scenario has resulted in the affordability index improving and should lead to greater demand for
owned houses as well as larger houses, thereby providing a fillip to the housing industry.
Mortgage to GDP ratio of various countries (%)

(Source: HDFC Ltd presentation)

Concerns
Slowdown in real estate sector
Any slowdown in the real estate sector could lead to higher default rates impacting the earnings of the company.
Regulatory changes
Regulatory changes like increase in risk weights for a certain category, cap on interest rates under refinance could mar the
growth and profitability of the company.
Highly concentrated in the western part of India
GHFL is highly concentrated in the western part of the country, and now spreading its presence in the rest part of the
country. Any political and economy uncertainty in such geography could impact the business of GHFL.
Asset quality might worsen
Although the asset quality has largely remained stable, high proportion of LAP loans to self-employed category where
income is volatile, could result in defaults leading to higher provisioning requirements.
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Rising competition from banks and peer companies
There is strong competition from banks and peer companies in the housing finance industry as it is considered relatively
lower risk loan. Higher competition might result in lower yields going forward. Further the cost of borrowing for Banks is
lower than that of HFCs. With new categories of Banks and NBFCs emerging, the competition in the sector is likely to be
hotter.
Cost to income ratio is higher than its peers
Cost-income ratio of the company is higher as compared to some of its peers which is affecting its margins. This is most
likely due to a smaller bas and lower leverage

Peer comparision
Company
(FY16)
Can Fin
DHFL
LICHF
GHFL
Repco
IBHFL

CMP
(Rs)
1668
293
573
313
842
814

Mkt Cap
(Rs Cr)
4439
8539
28907
1683
5269
34317

Total Inc
(Rs Cr)
1084
7857
12503
876
882
9226

PAT
(Rs Cr)
157
749
1668
125
154
2345

EPS
(Rs)
57.0
24.1
31.9
23.1
24.3
55.7

ABV
(Rs)
330.0
159.6
177.2
135.8
95.2
248.1

P/E
(x)
29.3
12.2
17.9
13.5
34.7
14.6

P/ABV
(x)
5.1
1.8
3.2
2.3
8.9
3.3

GNPA
(%)
0.2%
0.9%
0.5%
1.8%
1.3%
0.8%

NNPA
(%)
0.0%
0.6%
0.2%
0.0%
0.5%
0.4%

(Source: HDFC Sec)

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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Financial Statements
Income Statement
Particulars
Interest Income
Interest Expenses
Net Interest Income
Non interest income
Operating Income
Operating Expenses
PPP
Prov & Cont
Profit Before Tax
Tax
PAT

FY14
609.0
419.3
189.7
16.0
205.7
47.7
158.0
24.8
133.3
35.7
97.6

FY15E
716.0
508.9
207.1
16.8
223.8
57.8
166.0
12.3
153.7
50.7
103.0

FY16
857.3
600.7
256.6
19.1
275.7
68.9
206.9
15.8
191.1
66.6
124.5

FY17E
1016.9
712.4
304.5
25.3
329.8
81.5
248.3
19.3
229.0
77.9
151.2

FY18E
1181.9
825.3
356.6
28.7
385.3
95.4
289.9
22.8
267.1
90.8
176.3
(Source: Company, HDFC Sec)

Balance Sheet
Particulars
Share Capital
Reserves & Surplus
Shareholder funds
Borrowings
Other Liab & Prov.
SOURCES OF FUNDS
Fixed Assets
Investment
Cash & Bank Balance
Loans & Advances
Other Assets
TOTAL ASSETS

FY14
53.9
556.6
610.5
4651.8
255.9
5518.1
5.2
9.9
89.9
5332.3
80.7
5518.1

FY15E
53.9
606.5
660.4
5794.3
266.0
6720.7
2.6
9.8
41.6
6618.2
48.5
6720.7

FY16
53.9
677.9
731.8
7001.1
288.5
8021.4
2.2
9.8
52.3
7933.5
23.6
8021.4

FY17E
53.9
793.5
847.4
8486.0
333.5
9666.9
2.3
9.6
22.1
9599.5
33.6
9667.1

FY18E
53.9
931.0
984.9
9854.9
420.6
11260.3
2.4
11.1
66.8
11135.5
44.5
11260.4
(Source: Company, HDFC Sec)

Financial Ratios
Particulars
Return Ratios
Calc. Yield on adv
Calc. Cost of borr
Calc NIM
RoAE

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FY14

FY15E

FY16

FY17E

FY18E

12.3%
9.7%
3.8%
16.8%

12.0%
9.7%
3.5%
16.2%

11.8%
9.4%
3.5%
17.9%

11.6%
9.2%
3.5%
19.1%

11.4%
9.0%
3.4%
19.2%

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RoAA
Asset Quality Ratios
GNPA
NNPA
PCR
Growth Ratios
Advances
Borrowings
NII
PPP
PAT
Valuation Ratios
EPS
P/E
Adj. BVPS
P/ABV
Dividend per share
Dividend Yield (%)
Other Ratios
Cost-Income

1.9%

1.7%

1.7%

1.7%

1.7%

1.6%
0.0%
100.0%

1.7%
0.0%
100.0%

1.8%
0.0%
100.0%

1.7%
0.0%
100.0%

1.6%
0.0%
100.0%

17.1%
17.1%
15.5%
12.9%
14.7%

24.1%
24.6%
9.1%
5.0%
5.5%

19.9%
20.8%
23.9%
24.6%
20.9%

21.0%
21.2%
18.7%
20.0%
21.4%

16.0%
16.1%
17.1%
16.7%
16.6%

18.1
17.3
113.3
2.8
6.0
1.9

19.1
16.4
122.6
2.6
5.0
1.6

23.1
13.5
135.8
2.3
5.0
1.6

28.1
11.1
157.3
2.0
5.5
1.8

32.7
9.6
182.8
1.7
6.0
1.9

23.2

25.8

25.0

24.7

24.8
(Source: Company, HDFC Sec)

1 year price movement comparison with CNX Finance

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1 year forward P/ABV

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Fundamental Research Analyst: Atul Karwa, atul.karwa@hdfcsec.com

RETAIL RESEARCH Tel: (022) 3075 3400 Fax: (022) 2496 5066 Corporate Office
HDFC securities Limited, I Think Techno Campus, Building - B, "Alpha", Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042 Phone: (022) 3075 3400 Fax: (022) 2496 5066
Website: www.hdfcsec.com Email: hdfcsecretailresearch@hdfcsec.com.
"HDFC Securities Ltd. is a SEBI Registered Research Analyst having registration no. INH000002475."
Disclosure:
I Atul Karwa, MMS authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no
part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.
Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its Associate may have beneficial ownership of
1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any
material conflict of interest.
Any holding in stock No
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