GICHousingFinance

Playonaffordablehousingatattractivevaluations

511676
GICHSGFIN
GICHFIN
GICH.BO
NBFC
S&PBSE500
10
539
11,338
261/161
142,456

SHAREHOLDINGPATTERN
(asonDec.2015)

Institutions
Others,InclPublic
Promoters

57.8
0.0
42.3

Source:BSE

STOCKPER.(%)

GICHSGFIN
Sensex

1m

3m

12m

8
5

3
4

9
14

Source:Capitaline,IndiaNiveshResearch

GICHSGFINv/sSENSEX
130

110

90

70

GICHSGFIN

14/01/2016

31/12/2015

17/12/2015

Sensex

Source:Capitaline,IndiaNiveshResearch

March18,2016

GICHousingFinance(GICHSG),incorporatedin1989,ishousingfinancecompany
initiallystartedwiththenameofGICGrihVittaLtdwhichwaslaterchangedto
GIC Housing Finance in 1993. GICHSG was promoted by GIC of India and other
Govt.generalinsurancecompanieslikeNationalInsurance,NewIndiaAssurance,
Oriental Insurance and United India Insurance. Currently it has 59 branches
largelyinTierIandTierIIcities.

Investmentrationale
LowpenetrationandincreasingaffordabilitybodeswellforGIChousingtoo:GICHSG
was comparatively slow in business growth till FY12 as loan book grew modest 13%
CAGRinFY0512with31branches.However thecompanyhasstartedtodeliverhigh
teen/largelyinlineindustrygrowthat17%yoyforbothFY13andFY14whichincreased
furtherto24%yoyinFY15(and22%yoyinQ3FY16)andCAGRgrowthforlast1decade
increased to 16%. Clearly, the company has optimized its branch network which is
almostdoubledto59branchessinceFY12.WebelieveGICHSGislikelytodeliver19%
CAGR over FY1518E led by 18% growth in retail segment and 25% growth in non
individualsegmentoverthesameperiod.
Margins likely to remain broadly stable: Based on past trend, it is clearly visible that
GICHSG has started to take the benefit of growing LAP as non individual loans now
constitute16.1%toloanbookcomparedto2.3%inFY12.Asaresult,despitedeclinein
lendingratesduetoincreaseincompetition,NIMs(Calc)forGICHSGwasmaintainedat
3.7%inFY15.WeexpectNIMstostabilizeat3.43.5%forFY17EandFY18E.
Asset quality one of the best amongst peers, higher provisioning / nil NNPA drives
comfort: Asset quality for all Housing finance companies is best in financial space as
Housingfinancecompaniesprovidefinancinglargelytosalaried(baringfewplayerslike
Repcowhichfocusonnonsalaried).GICHSGisnotmuchdifferentfrom otherplayers
onassetqualityfrontasGrossNPA ofGICHSGisat1.7%.InterestinglyGICHSGis one
theplayerinHFCspacewheretheNetNPAsarenilindicating100%coverage.
Healthy earnings along with improving leverage to drive ROEs further to 19% by
FY18E: GICHSGs earnings growth CAGR has been healthy at 20% since FY12 led by
similar growth in both Loan book and Net Interest Income. We expect growth
momentum to remain healthy at 17% CAGR in both NII and operating profit in FY15
18E.FurtherweexpectROEstoimproveto19%byFY18Efrom16%inFY15.Moreover
averageROAof1.6%remainoneofthebestintheindustry.

Valuationandrecommendation:

DaljeetS.Kohli
HeadofResearch
Tel:+912266188826
[email protected]

YogeshHotwani
ResearchAnalyst
Tel:+912266188839
[email protected]

IndiaNiveshResearch

03/12/2015

19/11/2015

05/11/2015

22/10/2015

08/10/2015

24/09/2015

10/09/2015

27/08/2015

13/08/2015

30/07/2015

16/07/2015

02/07/2015

18/06/2015

04/06/2015

21/05/2015

07/05/2015

23/04/2015

09/04/2015

26/03/2015

12/03/2015

26/02/2015

50

12/02/2015

STOCKINFO
Bse
Nse
Bloomberg
Reuters
Sector
Index
FaceValue(Rs)
EquityCapital(RsMn)
MktCap(RsMn)
52wH/L(Rs)
AvgDailyVol(Bse+Nse)

InitiatingCoverage

Previous

Rating:NR
Target:NR

29/01/2015

Current
CMP:Rs.211
Rating:BUY
Target:Rs.265

15/01/2015

WecontinuetopreferHousingFinancestocksoverAssetfinancingandInfraFinancing
NBFCs as housing finance segment remains unaffected both on growth as well as on
assetqualityfront.WebelieveGICHSGislikelytobenextcandidateforreratingdueto
reasons stated above. Although the growth for closest peers is high compared to
GICHSGbutwebelieveaveragevaluationgapof53%(excl.HDFCandGruh)isignoring
thepositivesofGICHSG.AtCMPofRs211,GICHSGistradingatP/ABVof1.5xand1.3x
forFY17EandFY18Erespectively.WeinitiatecoverageonGICHSGwithbuyratingand
targetpriceofRs265,valuingitat1.6xFY18EABV.RisksSignificantdeteriorationin
assetquality,Lowergrowththananticipated,Significantcorrectioninrealestateprices,
Increaseincompetition/contractioninmargins.

YEMarch(Rsmn)
FY15
FY16E
FY17E
FY18E

NII
2220
2675
3067
3540

NetProfit
1030
1208
1386
1603

EPS(Rs)
19.1
22.4
25.7
29.7

BV(Rs)
ABV(Rs)
122.6
122.6
135.1
132.5
145.5
142.4
166.6
162.8

ROE(%)
16.2
17.4
18.3
19.1

ROA(%) P/BV(x) P/ABV(x)

Source:IndiaNiveshResearch

IndiaNiveshSecuritiesLimited|ResearchAnalystSEBIRegistrationNo.INH000000511
601&602,SukhSagar,N.S.PatkarMarg,GirgaumChowpatty,Mumbai400007.Tel:(022)66188800
IndiaNiveshResearchisalsoavailableonBloombergINNS,ThomsonFirstCall,ReutersandFactivaINDNIV.

InitiatingCoverage(contd...)

CompanyBackground
GIC Housing Finance (GICHSG), incorporated in 1989, is housing finance company initially
started under the name of GIC Grih Vitta Ltd which was later changed to GIC Housing
Financein1993.GICHSGwaspromotedbyGeneralInsuranceCorporationofIndiaandother
Government general insurance companies like National Insurance Company Ltd, New India
Assurance Company Ltd, Oriental Insurance Company Ltd and United India Insurance
CompanyLtd.TheprimarybusinessofGICHFLisgrantinghousingloanstoindividualsandof
late,thecompanyhasstartedfocusingonloanagainstpropertysegment.Currentlyithas59
brancheslargelyinTierIandTierIIcities.IthasgotastrongDirectSalesAssociates(DSAs)
network and has tie ups with builders to provide finance to individual borrower and with
corporatesforvarioushousingfinanceneeds.

Investmentrationale
LowpenetrationandincreasingaffordabilitybodeswellforGIChousingtoo:
Housing Finance business is India is highly under penetrated compared to both developed
anddevelopingcountriesleavingsignificantpotentialforexistingaswellasnewplayersto
deliveratleast15%CAGR(despiteincreasingbase)fornext1decade.Thiswillbeledby1)
increasing affordability and urbanization on back of increase in number of earning
population, 2) governments initiative of focusing more on affordable housing and 3) tax
advantageforindividuals(whichhasincreasedfurtherbyRs50,000/inFY17UnionBudget
totaling deduction of Rs 4,00,000/ including both principal and interest component).
ImportantlyIndiaspopulationisexpectedtoincreaseto1.38bnbyFY20fromcurrent~1.25
bnwhichwillleadtosustainabledemandforhousing/realestateassets.
MortgagePenetration(as%ofGDP)
120
101
100

94
84

81

76

80

62
60

56

54

40

32

20

18

15

20

32

36

36

40

40

45

44

45

45

20

FY13

FY14

FY15

Denmark

UK

USA

Singapore

Germany

Hongkong

Taiwan

SouthKorea

Malaysia

Thailand

China

India

Q3FY16

Source:Company,HDFC,IndiaNiveshResearch

TillFY12GICHSGwascomparativelyslowinbusinessgrowthasloanbookgrewmodest13%
CAGRinFY0512with31branches.Howeverthecompanyhasstartedtodeliverhighteen/
largelyinlineindustrygrowthat17%yoyforbothFY13andFY14whichincreasedfurtherto
24%yoyinFY15(and22%yoyinQ3FY16)andCAGRgrowthforlast1decadeincreasedto
16%.Clearly,thecompanyhasoptimizeditsbranchnetworkwhichisalmostdoubledto59
branches since FY12. This growth is despite the fact that banks are focusing on Home and
Autoloansinlast2to3yearsdueto1)significantslowdowninCorporatesegmentand2)
significantincreaseinstress.WhilebanksarelikelytoshifttheirfocusonCorporatesegment
once the capex picks up, Housing finance players are likely to get benefited from strategic

GICHousingFinance(contd...)

March18,2016|2

InitiatingCoverage(contd...)

shiftofbanksaswell.HoweverwearenotbuildinginanyincrementalbenefittoHFCs(under
coverage) from strategic shift in business of bank as we believe corporate capex cycle is
unlikelytoimproveatleastinFY17.HencewebelieveGICHSGislikelytodeliver19%CAGR
over FY1518E led by 18% growth in retail segment and 25% growth in non individual
segmentoverthesameperiod.

Fig.in%

Fig.inbn

Loanbook(bn)/Growth (%)

Source:Companyfilings,IndiaNiveshResearch

Fig.in%

Fig.inbn
Source:Company,IndiaNiveshResearch

Fig.inbn

NonIndividual/LAP(bn)andgrowth(%)

Fig.in%

Individual/Retailloan(bn)andgrowth(%)

Source:Company,IndiaNiveshResearch

Fig.in%

%ofloansuptoRs1.5mnandaboveRs1.5mn

Source:Companyfilings,IndiaNiveshResearch

GICHousingFinance(contd...)

March18,2016|3

InitiatingCoverage(contd...)

.SmallplayersgainingmarketshareandsoisGICHousingbutmarginally:
WhileRBIprovidesonlybankingsectorsoutstandingcreditnumbersinhousingsegment,we
havetriedtocalculatethebroadHousingFinanceindustrymarketsizebasedontop10HFCs
(includinglistedandunlisted).Basedonourcalculation,wenotethatsmallhousingfinance
companiesaregainingmarketshareoncontinuousbasiswhiletop2players(basedonour
calculation)arelosingthemarketsharetosmallplayers.Thisisclearlyindicativeofthrustfor
growthamongstsmallplayersandscalingthebusinessespeciallyinTier3andTier4cities.
FY11
HDFC
1171
LICHSG
511
IndiabullsHous. 198
DewanHous.
141
PNBHous.
32
CanFin
22
Gruh
32
ICICIHF
84
GICHous.
34
Repco
21
Total
2246

Loanbook(bn)
CAGR
FY12 FY13 FY14 FY15 Q3FY16 FY11Q3FY16 FY14Q3FY16
1409 1700 1971 2282
2481
17.1
14.1
631 778 913 1084
1174
19.1
15.4
275 344 412 522
623
27.2
26.7
194 339 406 510
590
35.2
23.8
40 66 106 168
219
50.2
51.5
26 40 58 82
99
37.2
35.7
41 54 70 89
105
28.7
26.1
67 66 66 77
86
0.6
16.2
39 45 53 66
75
18.1
22.1
28 35 47 60
72
29.8
27.7
2749 3469 4102 4941
5524
20.9
18.5

FY11
52.15
22.75
8.83
6.28
1.41
0.98
1.41
3.75
1.52
0.92
100.0

MarketShare(%)
FY12 FY13 FY14 FY15 YTDFY16
51.25 49.02 48.05 46.18
44.91
22.95 22.43 22.27 21.93
21.25
10.01 9.92 10.04 10.57
11.27
7.06 9.77 9.90 10.33
10.68
1.44 1.91 2.58 3.40
3.96
0.95 1.15 1.41 1.66
1.79
1.48 1.57 1.71 1.80
1.90
2.43 1.90 1.62 1.56
1.56
1.41 1.31 1.30 1.34
1.36
1.02 1.02 1.14 1.22
1.30
100.0 100.0 100.0 100.0
100.0

Source:Company,IndiaNiveshResearch

MarketShare(%)

FY12

FY15

Q3FY16

BusinessModel
While GICHSGs retail / individual loan segment has delivered 14% CAGR since FY12, non
individualsegment(LAP)hasgrownat122%overthesameperiod.ATS(averageticketsize)
forGICHSGatRs1.5mniscomparativelylowerandlargelyinlinewithsmallplayers.Further
itoffersbothfixedandfixofloatingloans(fixedforfirst~5yearsandfloatingthereafter)like
LICHousing(offers2yearsfixedrateloan).GICHSGoffersloansat9.65%forfirst5yearsand
1monthandfloatingthereafterlikeLIChousingwhichofferssimilarproductfor2yearsfixed
at 9.6%. Further Loan to Value is 65% for GICHSG and it generates business through DSAs
(DirectSellingAgents)andtieupwithbuilders.Thecompanyisplanningtoincreaseitsfocus
innorthernpartofthecountryandlikelytoopenbranchesinthatregion.

GICHousing

LTV~65%

5yrsFixedrateloanat9.65%
andfloatingthereafter

ATSofRs1.5mn

businessthroughDSAsand tie
upwithbuilders

59Branches

GICHousingFinance(contd...)

March18,2016|4

InitiatingCoverage(contd...)

Branches(No.) /%ofTotal

Source:Companyfilings,IndiaNiveshResearch

Marginslikelytoremainbroadlystable:
Based on past trend, it is clearly visible that GICHSG has started to take the benefit of
growingLAPasnonindividualloansnowconstitute16.1%toloanbookcomparedto2.3%in
FY12.Asaresult,despitedeclineinlendingratesduetoincreaseincompetition,NIMs(Calc)
forGICHSGwasmaintainedat3.7%inFY15against3.9%averageforlast5years.However
wearenotbuildinginanysignificantincreaseinnonindividualloansegmentasa%ofloan
bookfromcurrentlevel.HenceweexpectNIMstostabilizeat3.43.5%forFY17EandFY18E.

Loanbookbreakup (%)

NIMs/Yields/Cost(%)
14.0
12.0

Fig.in%

Fig.in%

10.0
8.0
6.0
4.0
2.0
0.0
FY07

FY08

FY09

FY10

FY11

YieldsonFunds(%)

FY12

FY13

FY14

CostofFunds(%)

Source:Company,IndiaNiveshResearch

FY15

FY16E FY17E FY18E

Source:Company,IndiaNiveshResearch

Fig.in%

Fig.inbn

NetInterestIncome (bn) andNIIgrowth (%)

Source:Companyfilings,IndiaNiveshResearch

GICHousingFinance(contd...)

March18,2016|5

InitiatingCoverage(contd...)

BankBorrowingshavecomedownwithsimilarincreaseinNHBborrowings:
BankborrowingsofGICHSGhavecomedownfrom72%inFY14andFY15to65%currently.
NHBborrowingshaveincreasedto25%vs15%inFY15.Aspermanagement,thecompany
willalsoconsiderCPandNCDsiftheratesarecompelling.WebelievegraduallyGICHSGwill
increaseitsfocusonmoneymarketborrowingscomparedtofixedrateborrowingscurrently.

BorrowingProfile(Rsmn)
Bank
%oftotal
RefinancefromNHB
%oftotal
ShorttermloansandCP
%oftotal
NCDs
%oftotal
Borrowings

FY11
22770
73.8
4100
13.3
4000
13.0
0
0.0
30864

FY12
27080
75.3
5510
15.3
3450
9.6
0
0.0
35949

FY13
26400
66.4
8230
20.7
4000
10.1
1150
2.9
39730

FY14
33460
71.9
7230
15.5
4750
10.2
1150
2.5
46520

FY15
41740
72.0
8600
14.8
6500
11.2
1150
2.0
57940

Q1FY16
42950
70.3
12510
20.5
5230
8.6
450
0.7
61130

Q2FY16
43730
68.2
12990
20.3
6950
10.8
450
0.7
64120

Q3FY16
44180
65.1
17070
25.1
6190
9.1
450
0.7
67890

Asset quality one of the best amongst peers, higher provisioning / nil NNPA drives
comfort:
Source:Company,IndiaNiveshResearch

AssetqualityforallHousingfinancecompaniesisbestinfinancialspaceasHousingfinance
companiesprovidefinancinglargelytosalaried(baringfewplayerslikeRepcowhichfocuson
nonsalaried).Thissegmentissaferbecause1)loansanctioningisdonebasedon5060%EMI
repayment from borrowers total salary leaving 4050% for routine home expense, 2)
completeCIBILcheckofborrowerand3)bynatureIndians(aslargepartofIndiaismiddle
and lower middle class) are emotionally attached to hard earned assets like Property and
Gold which results in lowest NPAs (like 50170 bps) for most of the players. Moreover to
minimize the risk, GICHSG has made it compulsory for allborrowers to opt for 1) Personal
Accident Insurance and 2) Mortgaged property Insurance while Life Insurance is optional.
HenceGICHSGisnotmuchdifferentfromotherplayersonassetqualityfront.GrossNPAof
GICHSGisat1.7%.InterestinglyGICHSGisonetheplayerinHFCspacewheretheNetNPAs
are nil indicating 100% Provision coverage. Excess provisioning over the regulatory
requirementiscomfortingfactor.
GrossNPA
NetNPA

FY11
2.78
0.41

Source:Company,IndiaNiveshResearch

FY12
2.08
0.00

FY13
1.86
0.00

FY14
1.57
0.00

FY15
1.73
0.00

Provisioning(as%ofLoans)

Source:Companyfilings,IndiaNiveshResearch

HealthyearningsalongwithimprovingleveragetodriveROEsfurtherto19%byFY18E:
GICHSGsearningsgrowthCAGRhasbeenhealthyat20%sinceFY12ledbysimilargrowthin
bothLoanbookandNetInterestIncome.Weexpectgrowthmomentumtoremainhealthy
at 17% CAGR in both NII and operating profit in FY1518E. Further we have built in
provisioning expense slightly higher compared to FY15 (18 bps in FY15) at 25 bps of loan
book and expect Net profit CAGR at 16%. Further we would like to highlight that we have

GICHousingFinance(contd...)

March18,2016|6

InitiatingCoverage(contd...)

Fig.inmn

Fig.in%

factored in cost to income ratio at higher end of 26% for both FY17E and FY18E as the
companyislikelytoexpanditsbranchnetworkinnorthernmarkets.Thisisdespitethefact
thatcompanyhasreportedlowercosttoincomeratioof24.2%for9MFY16mainlydueto
higherNIIgrowthin9MFY16.

NetProfit(mn)/growth (%)

Source:Companyfilings,IndiaNiveshResearch
Note:FY11NetProfitishighmainlyduetohigherotherincomeofRs885mnonbackofStakesaleinLICAMCLtd.&LICTrustee

ROE(%)

ROA (%)

Source:Company,IndiaNiveshResearch

Note:FY11ROEandROAishighmainlyduetohigherotherincomeofRs885mnonbackofStakesaleinLICAMCLtd.andLICTrusteeCo

DupontAnalysis
(Rsmn)
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E
NII(%)
4.1
4.2
3.7
3.6
3.5
3.1
4.0
4.0
3.6
3.6
3.4
3.4
NonIntInc(%)
0.1
0.1
0.1
0.6
2.8
0.1
0.0
0.0
0.0
0.0
0.0
0.0
OperatingInc(%)
4.1
4.4
3.8
4.1
6.3
3.2
4.0
4.0
3.7
3.6
3.5
3.4
OperatingExp(%)
0.6
0.7
0.6
0.7
0.9
0.8
0.9
0.9
0.9
0.9
0.9
0.9
Preprovisionprofit(%)
3.5
3.7
3.1
3.5
5.4
2.5
3.1
3.1
2.7
2.7
2.6
2.5
ROA(%)
2.6
2.4
2.1
2.3
3.4
1.5
1.9
1.9
1.7
1.6
1.6
1.5
Avgtotalassets/Avgequity(x)
9.0
7.7
8.1
8.0
7.9
8.3
8.6
8.8
9.6 10.7 11.8
12.5
ROE(%)
23.2 18.8 17.2 18.3 26.7 12.3 16.3 16.8 16.2 17.4 18.3
19.1
Avgtotalassets(mn)
19407 23067 26848 29568 33898 40051 45173 51347 61187 74588 89372 105514
AvgEquity(mn)
2162 3007 3322 3676 4267 4818 5240 5806 6354 6942 7560
8408
Source:IndiaNiveshResearch

FurtherwenotethatGICHSGhistoricallymaintaineditsleverageratioat810x(averagetotal
assets to average equity) which is lower than 913x for other HFCs under coverage. We
believe improving leverage is likely to help in improving ROEs to 19% from 16% in FY15.
MoreoveraverageROAof1.6%remainoneofthebestintheindustry.

GICHousingFinance(contd...)

March18,2016|7

InitiatingCoverage(contd...)

DupontAnalysisPeerComparison

(Rsmn)
NII(%)
NonIntInc(%)
OperatingInc(%)
OperatingExp(%)
Preprovisionprofit(%)
ROA(%)
Avgtotalassets/Avgequity(x)
ROE(%)
Avgtotalassets(mn)
AvgEquity(mn)
Source:IndiaNiveshResearch

DewanHousing
LICHousing
FY12 FY13 FY14 FY15 FY12 FY13 FY14
FY15 FY12
2.4
2.9
2.7
3.0
2.4
2.1
2.2
2.2
3.1
1.6
1.0
0.5
0.3
0.4
0.3
0.3
0.2
0.1
4.0
3.8
3.2
3.3
2.7
2.4
2.5
2.4
3.2
1.5
1.4
1.0
1.0
0.4
0.4
0.4
0.4
0.8
2.5
2.5
2.2
2.3
2.3
2.0
2.1
2.0
2.5
1.8
1.7
1.4
1.4
1.5
1.4
1.5
1.3
1.5
9.3
10.1
10.9
11.2
12.0
12.0
12.6
13.5
8.3
17.1
17.1
15.5
15.1
18.6
16.8
18.8
18.1 12.3
167387 266286 372492 458181 591521 731632 881683 1038266 40051
17906 26349 34060 41054 49257 60817 70071 76757 4818

GICHousing
FY13 FY14 FY15
4.0
4.0
3.6
0.0
0.0
0.0
4.0
4.0
3.7
0.9
0.9
0.9
3.1
3.1
2.7
1.9
1.9
1.7
8.6
8.8
9.6
16.3 16.8 16.2
45173 51347 61187
5240 5806 6354

Capitaladequacy:
GICHSGhasmaintaineditscapitaladequacyratioat16.5%(purelytierIcapital)wellabove
theregulatoryrequirementat12%.GICHSGhasnotraisedTierIIcapitaltilldate.Furtherwe
believeGICHSGiswellcapitalizedtogrowfornext2to3yearswithoutadditionalcapitaltill
FY18E.

Sensitivityofearnings/PricetargetwithrespecttoLoangrowth:
Whilewedontexpectanysignificantdeclineinmarginsorsignificantdeteriorationinasset
quality, we have tried to capture the impact on earnings or ABV based on change in loan
growthassumptions.Webelievethevaluationsarelikelytoremainreasonable(comparedto
smallHFCs)evenafterconsideringthebearcasescenario.

LoanBook(mn)
Loangrowth(%)
NII(mn)
NIIgrowth(%)
NetProfit(mn)
NetProfitgrowth(%)
ABV(Rs)
ROE(%)
ROA(%)
P/ABV

FY16E
77513
17.5
2649
19.3
1237
20.1
132.8
17.8
1.7
1.6

BearCase
FY17E
89986
16.1
2952
11.5
1337
8.1
140.0
17.7
1.6
1.5

FY18E
103973
15.5
3370
14.2
1518
13.6
158.0
18.2
1.5
1.3

FY16E
79513
20.5
2675
20.5
1208
17.3
132.5
17.4
1.6
1.6

BaseCase
FY17E
94736
19.1
3067
14.6
1386
14.7
142.4
18.3
1.6
1.5

FY18E
112273
18.5
3540
15.4
1603
15.7
162.8
19.1
1.5
1.3

FY16E
80763
22.5
2664
20.0
1244
20.8
135.8
17.9
1.7
1.6

BullCase
FY17E
98936
21.1
3126
17.4
1443
16.0
147.0
18.9
1.6
1.4

FY18E
119173
20.5
3740
19.6
1717
19.0
169.9
20.1
1.5
1.2

Source:IndiaNiveshResearch

PeerAnalysis
HDFC*
LICHSG
IndiabullsHous.*
DewanHous.
Gruh*
CanFin*
GICHous.
Repco*

LoanBook BookValue(Rs)
EPS(Rs)
P/E(x)
(Rsbn)
FY17E FY18E FY17E FY18E FY17E FY18E
2481
244
274
49.1
56.4
23.0
20.0
1174
211
245
37.0
41.9
11.6
10.3
623
288
314
65.0
75.0
9.4
8.2
590
201
219
27.0
31.1
6.2
5.4
105
31
35
8.6
10.5
27.3
22.3
99
393
458
71
86
14.4
11.9
75
146
167
25.7
29.7
8.2
7.1
72
177
213
31
38
18.9
15.2

Source:*Bloomberg,IndiaNiveshResearch

P/BV(x)
ROE(%)
ROA(%)
FY17E FY18E FY17E FY18E FY17E FY18E
4.6
4.1 21.5 21.8
2.5
2.5
2.2
1.9 18.9 18.4
1.3
1.3
2.1
2.0 23.5 25.0
3.7
3.5
0.9
0.8 14.0 16.0
1.2
1.2
7.6
6.7 30.2 32.8
2.4
2.4
2.6
2.2 18.9 20.3
1.5
1.5
1.4
1.3 18.3 19.1
1.6
1.5
3.3
2.7 18.7 20.0
2.2
2.2

GICHousingFinance(contd...)

March18,2016|8

InitiatingCoverage(contd...)

RisksandConcerns:
Significantdeteriorationinassetquality:
GICHSG has maintained its asset quality at 1.7% Gross NPA and nil Net NPAs. However
conservativelywehavefactoredinmarginalincreaseinGrossNPAinFY17E.Anysignificant
deviationfromourassumptionremainsrisktoourestimates.
Lowergrowththananticipated:
Weareexpectingloangrowthof19%overFY1518Ewhichislowerthancurrentgrowthrate
of 24% in FY15 and 22% for Q3FY16. Lower than expected growth from our assumption
remainsthekeyrisktoourestimates.
Significantcorrectioninrealestateprices:
Real estate prices are key factor in housing finance business as loan growth depends on
propertymarket.Althoughthereismarginalcorrectioninpricesinsomepocketsbutifany
significant correction happens then it will pose threat to business and our estimates.
HoweverGICHSGsLTVinLAPisinlinewithindustryat5560%buthigherthanLICHSGwhich
does at 3035%. Hence correction in property prices will impact asset quality in LAP if not
individualloans.
Increaseincompetition/contractioninmargins:
We expect margins of 3.5% and 3.4% for FY16E and FY17E respectively. Any significant
contraction in margins due to competition from banks could lead to change in earnings.
Howeverourmarginassumptionisatbasecaseandholdsupsideriskascompanyisfocusing
onLAPbusinesswhichiscomparativelyhighyielding.

Valuationandrecommendation:
WecontinuetopreferHousingFinancestocksoverAssetfinancingandInfraFinancingNBFCs
ashousingfinancesegmentremainsunaffectedbothongrowthaswellasonassetquality
front.Whilewehavecontinuouslyhighlightedthepositivesabouthousingfinancesegment
in our coverage stocks (like LIC Housing and Dewan Housing), most of the listed housing
finance companies got rerated (like Repco, Gruh Finance, Indiabulls Housing and CanFin
homes)subsequently.HoweverwebelieveGICHSGislikelytobenextcandidateforrerating
due to 1) increased thrust of growing loan book led by recent branch expansion, 2)
selectively focusing on LAP to maintain margins, 3) likely improvement in ROEs with
comparativelybetterROAs(comparedtosimilarsizeplayerslikeRepcoandCanFinandeven
largeplayerslikeLICHSGandDewanHousing).Althoughthegrowthforclosestpeersishigh
comparedtoGICHSGbutwebelieveaveragevaluationgapof53%(exclHDFCandGruh)is
ignoring the positives of GICHSG. Hence we believe this discount is likely to narrow to
averageof40%implyingmultipleexpansionsofatleast25%fromcurrentlevelforGICHSG.
At CMP of Rs 211, GICHSG is trading at P/ABV of 1.5x and 1.3x for FY17E and FY18E
respectively. We initiate coverage on GICHSG with buy rating and target price of Rs 265,
valuingitat1.6xFY18EABV.

GICHousingFinance(contd...)

March18,2016|9

InitiatingCoverage(contd...)

FinancialStatements:

IncomeStatement(Rsmn)
InterestIncome
InterestExpense
NetInterestIncome
OtherIncome
NetIncome
TotalIncome
TotalExpenses
PreProvisionProfit
Provisions
ProfitBeforeTax
Tax
ProfitAfterTax

FY15
7309
5089
2220
18
2238
7327
578
1660
123
1537
507
1030

FY16E
8743
6068
2675
20
2696
8763
681
2015
194
1820
613
1208

FY17E
10391
7325
3067
22
3089
10414
806
2283
216
2067
681
1386

FY18E
12242
8702
3540
24
3564
12266
917
2647
257
2391
788
1603

Source:Company,IndiaNiveshResearch

BalanceSheet(RsMn)
Liabilities
Equity
ReservesandSurplus
NetWorth
Borrowings
OtherLiabilities&Provision
TotalLiabilities
Assets
NetBlock
Loans&advances
Investments&OtherAssets
TotalAssets

FY15

FY16E

FY17E

FY18E

539
6065
6604
57943
2646
67192

539
6741
7280
71641
3063
81984

539
7302
7840
85357
3564
96761

539
8436
8975
101158
4134
114266

26
65979
1187
67192

28
79513
2442
81984

30
94736
1995
96761

32
112273
1961
114266

Source:Company,IndiaNiveshResearch

ValuationRatios
EarningPerShare(Rs)
BookValuePerShare(Rs)
AdjBookValuePerShare(Rs
DividendPerShare(Rs)
P/E(x)
P/BV(x)
P/ABV(x)
GrowthYoY(%)
Loan
Borrowing
Balancesheet
NetInterestIncome
OtherIncome
NetProfit
ReturnRatios(%)
ROA
ROE
Yield/Margin(%)
YieldonFunds
CostofFunds
InterestSpread
NetInterestMargin
NetProfitMargin
DividendYield
OtherRatios(%)
Cost/Income
InterestExpense/InterestIn
NetInterestIncome/NetInc
CAR
TierI
GrossNPA
NetNPA
ProvisionCoverageRatio

FY15
19.1
122.6
122.6
5.0
11.0
1.7
1.7

FY16E
22.4
135.1
132.5
5.0
9.4
1.6
1.6

FY17E
25.7
145.5
142.4
5.5
8.2
1.4
1.5

FY18E
29.7
166.6
162.8
6.0
7.1
1.3
1.3

24.2
24.6
21.8
8.6
34.6
5.5

20.5
23.6
22.0
20.5
9.7
17.3

19.1
19.1
18.0
14.6
10.0
14.7

18.5
18.5
18.1
15.4
10.0
15.7

1.7
16.2

1.6
17.4

1.6
18.3

1.5
19.1

12.3
9.7
2.5
3.7
14.1
2.4

12.0
9.4
2.7
3.7
13.8
2.4

11.9
9.3
2.6
3.5
13.3
2.6

11.8
9.3
2.5
3.4
13.1
2.8

25.8
69.6
99.2
15.4
15.4
1.7
0.0
100.0

25.3
69.4
99.3
16.4
16.4
1.8
0.2
90.1

26.1
70.5
99.3
15.0
15.0
1.9
0.2
90.3

25.7
71.1
99.3
14.5
14.5
1.8
0.2
90.2

Source:Company,IndiaNiveshResearch

GICHousingFinance(contd...)

March18,2016|10

InitiatingCoverage(contd...)

Disclaimer:ThisreporthasbeenpreparedbyIndiaNiveshSecuritiesLimited(INSL)andpublishedinaccordancewiththeprovisionsofRegulation18oftheSecuritiesandExchangeBoardofIndia
(ResearchAnalysts)Regulations,2014,forusebytherecipientasinformationonlyandisnotforcirculationorpublicdistribution.INSLincludessubsidiaries,groupandassociatecompanies,promoters,
directors,employeesandaffiliates.Thisreportisnottobealtered,transmitted,reproduced,copied,redistributed,uploaded,publishedormadeavailabletoothers,inanyform,inwholeorinpart,for
anypurposewithoutpriorwrittenpermissionfromINSL.Theprojectionsandtheforecastsdescribedinthisreportarebaseduponanumberofestimatesandassumptionsandareinherentlysubjectto
significant uncertainties and contingencies. Projections and forecasts are necessarily speculative in nature, and it can be expected that one or more of the estimates on which the projections are
forecastswerebasedwillnotmaterializeorwillvarysignificantlyfromactualresultsandsuchvariationswilllikelyincreaseovertheperiodoftime.Alltheprojectionsandforecastsdescribedinthis
report have been prepared solely by authors of this report independently. None of the forecasts were prepared with a view towards compliance with published guidelines or generally accepted
accountingprinciples.
Thisreportshouldnotbeconstruedasanoffertosellorthesolicitationofanoffertobuy,purchaseorsubscribetoanysecurities,andneitherthisreportnoranythingcontainedthereinshallformthe
basisoforberelieduponinconnectionwithanycontractorcommitmentwhatsoever.Itdoesnotconstituteapersonalrecommendationortakeintoaccounttheparticularinvestmentobjective,
financialsituationorneedsofindividualclients.TheresearchanalystsofINSLhaveadheredtothecodeofconductunderRegulation24(2)oftheSecuritiesandExchangeBoardofIndia(Research
Analysts) Regulations, 2014. The recipients of this report must make their own investment decisions, based on their own investment objectives, financial situation or needs andother factors. The
recipientsshouldconsiderandindependentlyevaluatewhetheritissuitableforits/his/her/theirparticularcircumstancesandifnecessary,seekprofessional/financialadviceasthereissubstantial
riskofloss.INSLdoesnottakeanyresponsibilitythereof.Anysuchrecipientshallberesponsibleforconductinghis/her/its/theirowninvestigationandanalysisoftheinformationcontainedorreferred
tointhisreportandofevaluatingthemeritsandrisksinvolvedinsecuritiesformingthesubjectmatterofthisreport.Thepriceandvalueoftheinvestmentreferredtointhisreportandincomefrom
themmaygoupaswellasdown,andinvestorsmayrealizeprofit/lossontheirinvestments.Pastperformanceisnotaguideforfutureperformance.Actualresultsmaydiffermateriallyfromthoseset
forthintheprojection.
Exceptforthehistoricalinformationcontainedherein,statementsinthisreport,whichcontainwordssuchaswill,would,etc.,andsimilarexpressionsorvariationsofsuchwordsmayconstitute
forwardlookingstatements.Theseforwardlookingstatementsinvolveanumberofrisks,uncertaintiesandotherfactorsthatcouldcauseactualresultstodiffermateriallyfromthosesuggestedby
theforwardlookingstatements.Forwardlookingstatementsarenotpredictionsandmaybesubjecttochangewithoutnotice.INSLundertakesnoobligationtoupdateforwardlookingstatementsto
reflecteventsorcircumstancesafterthedatethereof.INSLacceptsnoliabilitiesforanylossordamageofanykindarisingoutofuseofthisreport.
ThisreporthasbeenpreparedbyINSLbasedupontheinformationavailableinthepublicdomainandotherpublicsourcesbelievedtobereliable.Thoughutmostcarehasbeentakentoensureits
accuracyandcompleteness,norepresentationorwarranty,expressorimpliedismadebyINSLthatsuchinformationisaccurateorcompleteand/orisindependentlyverified.Thecontentsofthis
reportrepresenttheassumptionsandprojectionsofINSLandINSLdoesnotguaranteetheaccuracyorreliabilityofanyprojection,assurancesoradvicemadeherein.Nothinginthisreportconstitutes
investment,legal,accountingand/ortaxadviceorarepresentationthatanyinvestmentorstrategyissuitableorappropriatetorecipientsspecificcircumstances.Thisreportisbased/focusedon
fundamentalsoftheCompanyandforwardlookingstatementsassuch,maynotmatchwithareportonacompanystechnicalanalysisreport.Thisreportmaynotbefollowedbyanyspecificevent
update/followup.
Followingtablecontainsthedisclosureofinterestinordertoadheretoutmosttransparencyinthematter;

DisclosureofInterestStatement
1

DetailsofbusinessactivityofIndiaNiveshSecuritiesLimited(INSL)

DetailsofDisciplinaryHistoryofINSL

12

Research analyst or INSL or its relatives'/associates' financial interest in the subject company and
natureofsuchfinancialinterest
WhetherResearchanalystorINSLoritsrelatives'/associates'isholdingthesecuritiesofthesubject
company
Research analyst or INSL or its relatives'/associates' actual/beneficial ownership of 1% or more in
securities of the subject company, at the end of the month immediately preceding the date of
publicationofthedocument.
ResearchanalystorINSLoritsrelatives'/associates'anyothermaterialconflictofinterestatthetime
ofpublicationofthedocument
HasresearchanalystorINSLoritsassociatesreceivedanycompensationfromthesubjectcompany
inthepast12months
HasresearchanalystorINSLoritsassociatesmanagedorcomanagedpublicofferingofsecuritiesfor
thesubjectcompanyinthepast12months
HasresearchanalystorINSLoritsassociatesreceivedanycompensationforinvestmentbankingor
merchantbankingorbrokerageservicesfromthesubjectcompanyinthepast12months
Has research analyst or INSL or its associates received any compensation for products or services
otherthaninvestmentbankingormerchantbankingorbrokerageservicesfromthesubjectcompany
inthepast12months
HasresearchanalystorINSLoritsassociatesreceivedanycompensationorotherbenefitsfromthe
subjectcompanyorthirdpartyinconnectionwiththedocument.
Hasresearchanalystservedasanofficer,directororemployeeofthesubjectcompany

13

HasresearchanalystorINSLengagedinmarketmakingactivityforthesubjectcompany

No

14

Otherdisclosures

No

4
5

6
7
8
9
10

11

INSLisaStockBrokerregisteredwithBSE,NSEandMCXSXinallthemajorsegments
viz. Cash, F & O and CDS segments. INSL is also a Depository Participant and
registered with both Depository viz. CDSL and NSDL. Further, INSL is a Registered
PortfolioManagerandisregisteredwithSEBI.
Nodisciplinaryactionis/wasrunning/initiatedagainstINSL
No (except to the extent of shares held by Research analyst or INSL or its
relatives'/associates')
No
No

No
No
No
No
No

No
No

INSL,itsaffiliates,directors,itsproprietarytradingandinvestmentbusinessesmay,fromtimetotime,makeinvestmentdecisionsthatareinconsistentwithorcontradictorytotherecommendations
expressedherein.Theviewscontainedinthisdocumentarethoseoftheanalyst,andthecompanymayormaynotsubscribetoalltheviewsexpressedwithin.Thisinformationissubjecttochange,as
perapplicablelaw,withoutanypriornotice.INSLreservestherighttomakemodificationsandalternationstothisstatement,asmayberequired,fromtimetotime.
Definitionsofratings
BUY.Weexpectthisstocktodelivermorethan15%returnsoverthenext12months.
HOLD.Weexpectthisstocktodeliver15%to+15%returnsoverthenext12months.
SELL.Weexpectthisstocktodeliver<15%returnsoverthenext12months.
Ourtargetpricesareona12monthhorizonbasis.
Otherdefinitions
NR=NotRated.Theinvestmentratingandtargetprice,ifany,havebeenarrivedatduetocertaincircumstancesnotincontrolofINSL
CS=CoverageSuspended.INSLhassuspendedcoverageofthiscompany.
UR=UnderReview.Sucheinvestreviewhappenswhenanydevelopmentshavealreadyoccurredorlikelytooccurintargetcompany&INSLanalystis waitingforsome moreinformationtodraw
conclusiononrating/target.
NA=NotAvailableorNotApplicable.Theinformationisnotavailablefordisplayorisnotapplicable.
NM=NotMeaningful.Theinformationisnotmeaningfulandisthereforeexcluded.
ResearchAnalysthasnotservedasanofficer,directororemployeeofSubjectCompany
OneyearPricehistoryofthedailyclosingpriceofthesecuritiescoveredinthisnoteisavailableatwww.nseindia.comandwww.economictimes.indiatimes.com/markets/stocks/stockquotes.(Choose
nameofcompanyinthelistbrowsecompaniesandselect1yeariniconYTDinthepricechart)

IndiaNiveshSecuritiesLimited

ResearchAnalystSEBIRegistrationNo.INH000000511
601&602,SukhSagar,N.S.PatkarMarg,GirgaumChowpatty,Mumbai400007.
Tel:(022)66188800/Fax:(022)66188899
email:[email protected]|Website:www.indianivesh.in

GICHousingFinance(contd...)

March18,2016|11