GRUH Finance Company analysis

Industry Overview : Housing is a primary necessity of humans and is a basic indicator of growth and social well-being. Development in housing sector is not just important to economic growth but is also one of the tools for economic development considering the accelerator impact it has on various industries including construction and infrastructure, Cement sector including labour market; it generates demand for supporting industries and leads to creation of job opportunities. Development of housing in a country is a sign of economic welfare. That is the reason why Govt is also supporting to the housing sector as it gives house to some one but also infuse Capital and other things in economy.

For any emerging economy, development of the housing sector has its own challenges. The biggest of these challenges is access to finance. While investment in real estate is an easy candidate for borrowing, real estate lending is more opportunity-based. In India, access to finance for housing needs is largely concentric and focused at higher income groups, as that is the sector where there are formal evidences of income such as salary slips or income-tax returns. Since lenders tend to lend to sectors where lending is the easiest, the lower segments of the population pyramid will remain unserved or underserved, if the system was left entirely to itself. Therefore, there is a need, in every financial system, to enable access to finance by lower segments of the population pyramid.

While the upper middle-income segment is well-served by banks and mortgage lenders, the lower middle income segment has low or no access to banks for mortgage finance; creating a huge demand in this segment and lack of access of finance. The fact that the upper segments of the pyramid are well-served is evident from the highly competitive mortgage lending rates prevailing for the sector. There is also a much longer way to travel in terms of ensuring the availability of housing finance to low income to middle income groups.

But the Risk profile of Rural are in India is different from urban. First of all the salary or similar source of income which is solid is hardly seen in the rural area. Most of Rural market is depend upon agriculture income Which is mainly depends upon rain. As India is mostly come under the Monsoon area, we have specific months for rain. That makes more risk in rural areas as if the rain distribution is lower, the income in rural areas also lower.

All of this makes case for Housing Finance company specially serving to Rural area.

Company overview : Subsidiary of Housing Development Finance Corporation, GRUH Finance is operating in Rural housing sector. The company set up in 1986 by HDFC to institutionalised Housing Finance in rural area. Since then the company grow around 90% part of Maharashtra and Gujarat and replicating its success in another states. HDFC as parent, support the company with Equity funding, operational and management support,  and the company also cross sell products of HDFC.

GRUH finance mainly support for finance, construction repair and renovation, purchase of affordable housing in rural areas. The company also finance self help group. The target market of the company is complementary for HDFC.

The company is operating is strategically important area for Govt of India. Providing housing facilities to everyone is target for Govt and that is where the company is operating. As the company is having backup of HDFC, and successful in Gujarat, Maharashtra Rajasthan, Chattisgadh. There are around 21 states still remaining fir the company to grow.

Market Risk and credit Riskis Low for company and as per results, it is clear that the company is concentrating on profitable operations which is important factor in business.

The company also sell insurance and for that it has tie up with Oriental Insurance Company and HDFC standard life insurance.

Financials and Ratios

Loan Book3176407754477020892611115.
Efficiency %9.6287.566.867.708.33
Book value9.1010.9413.8216.9219.6422.97
Dividend per Share1111.512.5151011.5
Net NPA to loan book000.05000.09
June 2014 company give 1:1 Bonus
During FY 12-13 effective date 26 July 2012, Stock splits make Face value from 10 to ₹2
Book value and EPS is adjusted for That.

Future prospects As housing for all is governments dream and the Govt is trying for that, it is one of the important sector for investment. Rural area, Account for 54% of Private consumption for Whole India. So if any company trying to serve Rural market, it is not shocking to see that it is grow with high CAGR. In FY 17 it is expected that the growth of Rural income will increase as the rainfall distribution is best in last 3 years. CRISIL expected that Agriculture growth will exceed 4% by good Rabi output. This all will helps to increase the growth of the company in coming Year.

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About Ashutosh Tilak

Tracking Indian Capital Market since 2010. Finance Student, On this blog I am writing about finance and Investing. You can contact me or @androidashu & @InsideFinanc on twitter