Market cheers Gruh Finance’s strong Q4 earnings

Radhika Merwin BL Research Bureau | Updated on January 15, 2018 Published on April 18, 2017


Niche offerings and the Centre’s focus on the affordable housing segment has kept Gruh Finance’s earnings in good stead in the latest March quarter. Gruh Finance is one of the pioneers in the rural housing finance segment, providing small ticket home loans to the low-income group in semi-urban and rural areas. Thanks to a healthy growth in loans and stable asset quality, the company has delivered 26 per cent y-o-y growth in net profit during the March quarter. In a lacklustre environment, the company’s healthy performance has no doubt pleased the market. The stock is up 5 per cent in trade today.

Gruh Finance’s loans have grown by 19 per cent y-o-y to Rs 13,244 crore as of the latest March quarter. With a major thrust on retail home loans, disbursements in this segment (constituting around 76 per cent of total disbursements) grew by a strong 31 per cent during 2016-17.

Gruh’s loan book has been on a strong wicket, growing over 25 per cent annually over the last decade. Despite the stellar pace of growth over the past couple of years, players such as Gruh Finance have ample opportunity to grow given the strong demand and shortage of housing in rural and urban areas.

According to a report submitted by a technical committee to the Ministry of Housing and Urban Poverty Alleviation (MHUPA), India’s urban housing shortage is estimated at nearly 18.78 million households. The urban housing shortage is acute across the Economically Weaker Section (EWS) and Low Income Group (LIG), which together constitute over 95 per cent of the total housing shortage. The Centre’s various initiatives for the affordable housing segment such as ‘Housing for All by 2022’ and the recently announced interest subvention scheme seeks to bridge the affordability gap in these segments. These initiatives present a huge opportunity for players such as Gruh Finance, having an average loan size of under Rs 10 lakh.

In spite of the risk in the affordable segment and the strong pace of loan growth, Gruh Finance has been able to maintain low loan delinquency through a diligent appraisal process and a deep understanding of the local market. The company’s gross non-performing assets (GNPAs) has been 0.3 to 1 per cent of loans in the last five years. As of March 2017, GNPAs stood at 0.31 per cent of loans, marginally lower than the 0.32 per cent levels recorded during the same period last year.

The stock is now trading at a pricey 11 times one year forward book, nearly triple what Repco Home Finance or LIC Housing Finance are currently valued at. But then the company has always commanded a substantial premium over its peers thanks to its consistent operational performance, strong parentage of HDFC, robust returns and good asset quality. The company continues to sport an industry leading net interest margin of 4-odd per cent and an enviable 30 per cent return on equity. Given the large opportunity in the low-cost housing segment, the company is likely to continue to trade at a premium to its peers.

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Published on April 18, 2017
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