Gruh Finance Ltd.

Ret ai l R es ea r ch D e sk Company Note 11th June 2010

CMP (BSE) Rs. 279.20 Recommendation - Buy

Key Data Company Background
BSE Code 511288 Gruh Finance Ltd., is a subsidiary of HDFC to replicate its home financing
NSE Code GRUH
business model in semi urban and rural areas. GRUH also offers loans for
Sensex 17064.95
CMP, Rs 279.20
purchase of non-residential properties like office premises and shops. HDFC
No.of Shares 17014 holds a 61.49% stake in the company. The company is active in the states of
Face Value 10.00 Gujarat, Maharashtra, Rajasthan, Madhya Pradesh, Karnataka, Chhattisgarh
Mcap,Rs Cr. 974.71 and Tamil Nadu. In Gujarat and Maharashtra, its penetration in more than
52 week H/L 326.50/174 80% of the talukas (administrative divisions) is phenomenal.
Industry Finance (Housing)
Investment Rationale:

 GRUH is penetrating into the rural and semi urban market which is
Share holding, Dec'09 % Holding
Indian Promoter 61.36% a niche in itself. It does not have much organised competition in this
Total FIIs 10.69% segment.
Total DII 3.44%  A phenomenal CAGR of 26.14% in Net Interest Income, 25.68% in
Public 24.51% PAT and 16.72% in Loan Disbursements which are among the top 3
in HFCs.
Total 100%
 GRUH has strong corporate governance and backing from its parent
HDFC which can be seen in the adequate provisioning leading to nil
NPAs and the robust growth like its parent.
 GRUH has consistently maintained RONW above 24% for the last
five years. The company has also maintained its CAR median at
15% well above the 12% rule.
 The company has made loans to just 13,870 families till this year and
we feel that there is immense potential given the successes of
businesses venturing into rural India with initial success. Given
cheaper refinancing done and strong credit rating, raising capital
and its costs should not be a problem.

Concerns:

1) The interest rates in the India are expected to harden in the coming
times along with the base rate regime coming into play. This could put
pressure on the net interest margin and there by affect the bottom-line
growth.
2) Competition coming in form of both organised and unorganised
sectors. The average yield realised on loan assets has also come down
from 13.47% to 12.14% this year.

mohitrathi@spagroupindia.com
Phone: +91- 11- 45586624
Valuation:
At the CMP of Rs. 279, the stock is available at TTM P/E of 14.02 and at a
P/BV of 3.66(BVFY10=76.21). We expect GRUH’s disbursements to grow by
more than 25% for the coming two years with not much downside in the
operating margins. Given GRUH’s high asset quality and its niche, we
recommend buying initiation at this price with further accumulation on
dips.
 Gruh Finance Ltd.
Ret ai l R es ea r ch D e sk Company Note 11th June 2010

Overview:
The government of India recommends a multi-pronged strategy for achieving the national goal of affordable
housing for all. HFCs are expected to show growth rates of over 20% in loan distribution for the next couple of
years. Also, in 2008, a Rural Housing Fund has been launched especially targeting the rural areas. GRUH being the
chief organised player in the rural housing arena is poised to do well. GRUH’s financial ratios have shown
improvement consistently and we expect the same to continue in the near future with strong guidance under
HDFC. The company has also consistently raised dividends implying confidence in profit growth. Seeing the
opportunities and the results delivered so far, we are confident GRUH is well poised to grow in the near future and
deliver good returns in the market at the same time.

Price performance vis-à-vis Sensex

Key Financials: Income Statement (Rs. Cr.)

Particulars FY 10 FY 09 FY 09
Key Ratios Loan
Particulars FY 10 FY 09 FY 08 Disbursements 780 655 632
Net Interest
Capital Adequacy Ratio (%) 16.55 16.21 18.15 Income 115 85 74
Fees and Other
Loans to Total Assets (%) 95 85 90 Income 12 7 6

Gross NPA to Loan (%) 1.11 0.94 1.11 Operating Cost 25 21 18

Net NPA to Loan (%) 0 0 0 Operating Profit 103 72 63

Net Interest Margin to Provisions and
Average Assets (%) 4.57 3.85 4.31 Write Offs 8 3 4
Profit Before
EPS 19.89 14.51 12.22 Tax 94 70 59

Profit After Tax 69 50 43

RONW (%) 28 24 24
Borrowed
Funds 2323 2245 1773

Loan Assets 2454 2091 1774

 Gruh Finance Ltd.
Ret ai l R es ea r ch D e sk Company Note 11th June 2010
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Disclosure of Interest Statement

1. Analyst ownership of the stock - Yes
2. Group/Directors ownership of the stock – Yes
3. Broking relationship with company covered – No

Sumit Duseja Research Analyst sumit.duseja@spagroupindia.com

Mohit Rathi Research Analyst mohitrathi@spagroupindia.com
Ravinder Walia Research Analyst ravinder.walia@spagroupindia.com
Deepak Sharma Research Analyst deepak.sharma@spagroupindia.com

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