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GIC Housing Finance
An undervalued stock set to benefit from low cost housing incentives by the government like infra status to affordable housing and interest subsidy on loans taken to buy affordable housing.
While the final notification on GoI’s extended scope of Pradhan-Mantri Awas Yojana (PMAY), which aims at providing housing for all, is still awaited, our interaction with stakeholders has pointed to immense growth potential in the affordable housing space. GICHFs increasing focus on the low income group (LIG) customer segment makes it the key beneficiary of the scheme, which would accelerate its growth further.
This, coupled with the company’s diverse borrowing mix and limited asset quality risk, provides greater comfort. Capital position remains strong.
1) Affordable Housing – Unprecedented growth potential: In a bid to cover a larger set of population in the LIG/EWS (economically weaker section), GoI extended the scope of PMAY in Dec’2016 to include a higher housing ticket-size and made a slightly higher income level eligible for interest subsidy.
While the final notification on the scheme is awaited, our interactions with stakeholders such as developers operating in the affordable housing space, rating agencies, housing finance companies (HFCs) and the National Housing Bank (NHB), have indicated that the affordable housing segment has immense growth potential.
2) Bodes well for GICHF: In our recent interactions, GICHF’s management stated that it expects growth to accelerate post the increase in branch reach (plans to add 5-10 branches per year) and due to its focus on client acquisition and retention. Its lending rates are competitive as compared to peers’ and its pace of repayment including pre-payments has moderated. With levers in place, we are factoring in 18%/20% CAGR in disbursement/loans, respectively, over FY16-19E. The extended scope of PMAY bodes well for GICHF given its customer profile (average ticket-size of Rs1.6mn) and loan exposure (50% of loans are below Rs1.5mn).
Under these circumstances GICHF’s growth rates are set to inch upwards. We however have not factored in the likely benefits of the scheme into our estimates as we will watch for developments therein.
3) Shift to non-bank avenues underway; temporary blip in asset quality: The increasing reliance towards non-bank avenues has helped GICHF reduce its cost of funds and in-turn reduce its lending rates. Spreads (calc) over the same time, however have remained healthy at ~240bps+.
We expect the trajectory on spreads to remain intact over FY16-19E. On the asset quality side, GNPAs increased in Q3’17 due to a) the impact of demonetisation (did not avail regulatory dispensation on NPA recognition to the tune of Rs620mn) b) reverse amortisation, and c) a change in the collection policy.
However, we do not foresee any material risk to asset quality due to its retail nature of lending.
Valuation, view and key risk
We have revised our growth and margin estimates for FY18E/FY19E.
With the growth momentum accelerating and a respectable returns profile, we believe valuations at 3.5x FY19E ABV merit due consideration(which is a 20% discount to average book value of the industry). Upgrade to Buy and revise our TP to Rs718 (valued at 3.5x FY19E ABV)
i)Lower-than-expected loan growth
ii)Higher pre-payments remain key risks.
The stock has been in strong uptrend in all time frames (i.e Daily, Weekly & Monthly chart) and likely to continue higher.
Looking at monthly chart stock has been trading in successive higher highs and higher lows which clearly show presence of uptrend.
Recently stock made fresh life time high forming higher high which demonstrates higher highs and higher lows series likely to continue ahead. Among other peers this stock shows more upside potential and is currently trading at cheap valuations according to the industries P/B which also indicates the upside move likely to continue.
Thus both fundamental and technical study suggests further higher levels can be seen expected in this counter.
Looking at momentum indicator RSI, also is favor bulls as we find RSI trades above 60 levels which shows momentum and bullish bias in price.
Thus this stock should be kept in radar and every dips towards support should be utilized as buying opportunity and hold with medium to long term perspective.
Raja C V
Raja administers every aspect of Chartadvise, which provides share market courses in Mumbai.