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Sunidhi Securities
GIC Housing (Buy)
CMP: 259
Target: ₹342
The fundamentals of GIC Housing Finance Ltd are improving after it is witnessing a declining trend in the cost of fund considering the fund mix. Increasing urban population, lower mortgage penetration levels, increasing affordability, the moderation in the interest rates will enable HFCs to maintain their growth momentum in loan disbursements.
Renewed thrust on loan growth, receding asset quality concerns and healthy return ratios remain key strengths. Union Budget’s sops to economically weaker sections and low/middle income groups will augment further growth for GICHFL.
GICHFL is expected to post an EPS of ₹38.8 in FY19E and ₹42.7 in FY20E. At the CMP, the share is trading at around a P/E of 6.6x and P/ABV of 1.8x on FY19E and a P/E of 6.0x and P/ABV of 1.4x on FY20E. We recommend ‘buy’ with a target price of ₹342 at which the share will trade at a P/E of 8.0x and P/AB of 1.9x on FY20E.
Key risk: a) GICHFL is exposed to risks such as liquidity risk, interest rate risk, credit risk, increase in non-performing assets (NPA) and operational risk which are inherent in the housing finance business; b) Intense competition, increase in cost of borrowing and narrowing of spread, pose a big challenge for sustaining profitability on consistent basis.
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