One of the unsung companies in the financial services sector is Gruh Finance (GFL), set up by HDFC to replicate its home financing business model in semiurban and rural areas. GFL provides long-term finance to individuals for construction, purchase, extension, repair and renovation of homes.GFL also offers loans for purchase of non-residential properties like office premises and shops. HDFC holds a 61.49% stake in the company. GFL has been a major housing finance company operating in the semi-urban and rural areas of Gujarat, Maharashtra, Rajasthan, Madhya Pradesh, Karnataka, Chhattisgarh and Tamil Nadu. It has dominated this market where, for years, aggressive private sector banks had not penetrated to tap the hidden demand. The market for housing loans in semi-urban areas was being serviced by a few public sector banks, cooperative banks and LIC Housing Finance. Mahindra & Mahindra Financial Services also plans to offer various kinds of home loans to its customers of auto loans in this market. But GFL has specialised in this business and is well-entrenched with various innovative products and flexible repayment options to suit consumers.
GFL complements HDFC’s operations. It has 89 branches – a majority of these in areas where HDFC does not have a presence. The main strategy of the company is to penetrate into places that are avoided by large housing finance companies. Its main aim is to establish a presence first at the district headquarters and, later, enter the adjoining areas after gathering enough information about the local markets.
GFL’s financial record has been as fantastic as its business model. Between the years ended March 2005 and March 2008, the company has enjoyed a rise in its net profit by an average 37%. Even in a difficult quarter, like March 2009, it has posted 53% rise in its operating income and 41% rise in its operating profits over the corresponding year-ago period. In fact, GFL’s operating profit jumped from Rs14.18 crore in December 2008 to Rs30.76 crore in the March 2009 quarter. GFL has registered a growth of 18% in loan assets during 2008-09, rising from Rs1,769.61 crore for FY08 to Rs2,085.61 crore for FY09. Over the past five quarters, the company has posted an average growth of 43% in revenues and 28% in profits. Its RoE is 23% and, at the current market price, the PE ratio is a low 8.26. The company has been posting an amazing profit margin of 25% over the past five quarters.
Currently trading at Rs121, its marketcap is 1.45 times its five-quarter average annualised sales and 5.77 times its operating profit. But the price trend of this stock has not been as sound as its financials. The stock price is driven more by the market than its fundamentals. When the Sensex fell 59% (from December 2007 up to 6 March 2009), GFL declined 60%. However, since the Sensex bounced back in mid-March 2009, GFL has been on an uptrend and its excellent March-quarter results have pushed the stock up sharply.
Market Cap 702.74
EPS (TTM) 14.51
P/E 13.98
P/C 13.71
Book Value 63.74
Price/Book 3.18
Div(%) 48.00
Div Yield(%) 2.37
Market Lot 1.00
Face Value 10.00
Industry P/E 25.40
GFL’s growth prospects are great because the government’s policies, bumper farm production, migration of rural folk to urban areas and improved communications favour a faster and higher transfer of wealth to semi-urban and rural areas. There is no reason why, with excellent management, access to low-cost funds and steady business, GFL cannot sustain its healthy profit growth. Buy stocks on declines.
