Gruh Finance's stock was an exception to the fall in banking and finance stocks during the year 2011. This outperformance, coupled with the recent rally in stocks on expectations of a rate cut, led to its value almost doubling in a year.

Gruh, which focuses on financing housing projects in rural and semi-urban areas, currently trades at 5.9 times its December book value, the highest among established financing players.

The stock got re-rated thanks to its rural focus which is relatively under-penetrated. Exposure to these clients provided it with good yields. With floating rate loans accounting for most of its loan book, it managed to pass on the rise in interest costs to its customers.

While the housing players in urban areas were aggressively competing by introducing teaser products, the competition was relatively less in Gruh's areas of presence. Therefore, it managed to maintain its margins.

Gruh's prudent lending practices also helped it keep tabs on asset quality slippages despite its exposure to risky clientele. In 2011, which was a testing year in terms of asset quality for other financial institutions, Gruh reduced its non-performing assets. Its net NPA is nil thanks to its conservative provisioning.

Gruh enjoys low cost-to-income ratio (20 per cent) which allows it to maintain superior profitability ratio. The recent Budget measures which focus on low-cost housing augurs well for the company's growth prospects.

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