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Suresh Krishnamurthy

AN investment in GRUH Finance stock can be considered. The stock trades at a multiple of seven times its expected per-share earnings for FY 05 and at a price to book value ratio of about 1.6.

Considering its profit growth of 28 per cent in the first nine months of FY 2005, the valuation is attractive. The stock also offers an attractive dividend yield of about 4 per cent. With the dividend payout ratio at only 33 per cent, the possibility of growth in dividends is high.

GRUH Finance is a subsidiary of HDFC, which is a major positive; HDFC has a 61-per cent stake.

GRUH's lending operations are mainly in Maharashtra and Gujarat. It is a small-sized company with revenues of less than Rs 100 crore. Its financials are in sound shape. The capital adequacy ratio of about 20 per cent allows the company considerable flexibility in managing both business growth and dividend disbursals. The proportion of bad loans at less than 2 per cent is also impressive.

The profitability of the operations has improved considerably in recent years, with spreads rising above 2 per cent. The return on net worth has consequently increased to above 20 per cent.

As growth prospects are bright in the home loan business, there is a strong likelihood of GRUH Finance sustaining its healthy profitability levels. In turn, this would translate into attractive returns for shareholders.

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