Dear Sir,

We would like to share with you a detailed report on GIC Housing Finance (NSE – GICHSGFIN).

Recently, in Sep’16 we shared our findings on GIC Housing Finance (NSE – GICHSGFIN), a well-known name in the housing finance space and promoted by domestic re-insurer General Insurance Corporation (GIC). The report was initiated for Alpha and Alpha plus members in September 2016 at around levels of 312 (CMP – 515).

Currently, we have a positive rating on the stock.


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Note: The report is being shared only for the purpose of information and is not an investment advice. In case you invest in GIC Housing Finance or for that matter any company, please carry out your own due diligence.



GIC Housing Finance – Basic details 
(25th Sep’16 note on the stock)

GIC Housing Finance Ltd (GICHF) was incorporated as ‘GIC Grih Vitta Limited’ on 12th December 1989. The name was changed to GICHF on 16th November 1993. It’s promoted by well known domestic re-insurer General Insurance Corporation (GIC) and is a well-known company in India’s Housing Finance market.

The Company was formed with the objective of entering into the field of direct lending to individuals and other corporate to accelerate the housing activities in India. The primary business of GICHF is granting housing loans to individuals and to persons/entities engaged in construction of houses/flats for residential purposes.

We like the company on account of its steady well managed growth in a growing market. The company has become slightly aggressive in terms of expansion into states other than Maharashtra and has been consistently adding new branches outside Maharashtra. The company also seems to have managed its loan book well and has made adequate provisions. GICHF is trying to reduce the share of bank borrowings and the same will help in reducing cost of funds with consequent improvement in net interest margins (NIM). Lastly the valuations also seem reasonable around current levels of 310.



GICHF was promoted by General Insurance Corporation of India and its erstwhile subsidiaries namely, National Insurance Company Limited, The New India Assurance Company Limited, The Oriental Insurance Company Limited and United India Insurance Company Limited.

As mentioned above the Company was formed with the objective of entering into the field of direct lending to individuals and other corporate to accelerate the housing activities in India.

GICHF is a small player in the Indian housing finance industry, with less than 1% market share, and a loan book of Rs 7,910 crores as on March 31, 2016 (Rs 6600 crores as on March 31, 2015). As per the report by CRISIL, its advances are largely concentrated in 4-5 states, with Maharashtra accounting for 59% of its loan portfolio as on March 31, 2016.

GICHF portfolio is skewed towards the salaried customers with average ticket size of ~15 lakhs, though in recent years the share of salaried customers is trending down on account of increasing proportion of Loans against Property (LAP) given to the self-employed borrower category in the portfolio. The company is doing so to improve the average yield on advances as the margins are high compared to the loans for purchase of homes.

Nevertheless, the portfolio continues to remain dominated by the Home loans (about 84% of the portfolio as on March 2016) with LAP product constituting about 16% of the total portfolio as on March 2016.

As per ICRA, despite increase in proportion of LAP portfolio which is considered a relatively riskier segment, comfort is taken from the prudent credit appraisal and lending policies with conservative LTV (Loan to value) and FOIR (Fixed obligations to income ratio) norms. Moreover, it does not undertake assessment of income in case of any loans and lends based on only the reported income of the borrowers.

The company has 60+ branches across the country for business and has got a strong marketing team, which is further assisted by Sales Associates (SAs). It has tie-ups with builders to provide finance to individual borrowers. It also has tie-ups with corporate for various housing finance needs.

It is good to note that in the last 4 years itself the company has doubled the number of branches from 31 at the end of Mar’12 to 60 at the end of Mar’16. The positive impact of aggressive expansion in branches can also be seen in loan book of the company which recorded modest 13% CAGR during FY 05-FY 12 while since FY 12 the retail loan portfolio of the company has recorded 19.5% CAGR with growth accelerating in the last 2 financial years.



General Insurance Corporation of India (GIC Re) and its erstwhile subsidiaries, National Insurance Company Ltd, the New India Assurance Company Ltd, the Oriental Insurance Company Ltd, and United India Insurance Company Ltd own 42.25% equity stake in GICHF.

GIC HF derives management, operational, and financial support from GIC Re and GIC Re has also committed to ensure that it will meet the financial obligations of GICHF on time.

As with all Public sector undertakings there’s lack of continuity as far as Managing Director of the company is concerned; however post the appointment of Mr. Warendra Sinha as the Managing Director in FY 13 the company’s growth has improved significantly both in terms of loan book and number of branches; though it could also be just a co-incidence.


Operating Performance

As far as operating performance of GICHF is concerned, it’s been on an uptrend on various parameters and they are discussed as below:

Loan book – As mentioned the company’s loan book has recorded 19.5% CAGR since FY 12 against 13% CAGR between FY 05 and FY 12. Further, the management expects to sustain current growth momentum of 18-20%.

Cost of Funds and Net Interest margin – Since FY 12 the company’s net interest margins have expanded from lows of 2.7% to current NIMs of 3.5%. As a result the net interest income of the company has recorded 23% CAGR since FY 12.

Further, since the last 3 years the company has been focusing on reducing proportion of higher cost bank borrowings. Bank borrowings of GICHF have come down from 72% in FY 14 and FY 15 to around 65% currently. NHB Borrowings have increased to 25% Vs 15% in FY 15. Also, as per the management the company will consider tapping bond markets and consider CPs (commercial paper) and NCDs (non-convertible debentures) if the rates are compelling.

Asset quality – At least till now the housing finance companies have the best asset quality in comparison to other segments in lending space.

Like other housing finance companies, GICHF is not much different in terms of asset quality and has tried to minimize the risk further by making it compulsory for all the borrowers to opt for Personal Accident insurance and Mortgages property insurance.

Over the years the asset quality of GICHF has improved with Gross NPA reducing from 2.78% at the end of Mar’11 to 1.76% at the end of Mar’16. The Net NPA is NIL. Further, as per the management the company is also carrying an additional provision of Rs 83.86 crores in books, beyond what is prescribed under the guidelines.

Capital Adequacy Ratio (CAR) – The Capital Adequacy Ratio of the Company as at 31st March, 2016 is 17.40% (Tier 1 Capital) as against 15.36% as at 31st March, 2015.

The CAR prescribed for the present is 12%.

Considering generation of internal accruals and good cushion between prescribed CAR and company’s current CAR we believe company may not require equity infusion from the promoters or the other sources for the next few years.

Return on average equity (ROAE) – The ROAE for the company has been gradually improving from the lows of 12-12.5% in FY 12 to 16.22% in FY 15 and 17.89% in FY 16.

Historically the company has maintained its leverage ratio in the range of 7-10x against 9-14x for other housing finance companies and with the increase in leverage the ROAE of the company can improve further.



At around current price of 310 GICHF is quoting at 2.2 times book value and 13 times trailing twelve months earnings and we believe the valuations of the company are reasonable on both absolute and relative basis.

The other listed housing finance companies though with better growth rates are trading in the range of 3-5.5 times book value.

As discussed above, the operating metrics of GICHF have been steadily improving in terms of return ratios, loan book growth, asset quality, etc. What is also heartening to note is the way the company has been expanding its branches and has been sustaining 20% growth year on year.

We believe if the company is able to sustain the growth momentum without major deterioration in asset quality there’s scope for expansion in valuations while on the earnings side GICHF can sustain 15-20% growth rate.

At around current price the stock offers dividend yield of 1.6%


Risks and Concerns

In the lending business, as an investor it’s difficult to exactly know the asset quality or the underreporting of the bad assets by the management. While currently the asset quality of GICHF looks robust and credit rating agencies like CRISIL and ICRA have assigned good ratings, a lot remains unknown to investors.

In PSUs, with Managing Directors and CEOs being changed at regular intervals there’s always this risk of bad management team replacing good team. Under the leadership of current MD the company seems to have attained some aggressiveness and this could go away with the change in MD of the company.

Housing finance is a well regulated industry and in case of adverse change in provisioning or capital adequacy requirements the profitability of the company can get negatively impacted.

Real estate industry has a direct bearing on housing loan demand. While till now the demand on housing finance seems to have been minimal, prolonged weakness in real estate market can hamper the growth of the company.


Disclosure: I don’t have any investment in GIC Housing Finance and have not traded in the stock in the last 30 days.


Best Regards,

Ekansh Mittal
Research Analyst
Ph.: +91-727-5050062, Mob: +91-9818866676


Rating Interpretation

Positive – Expected return of ~15% + on annualized basis in medium to long term
Neutral – Expected Absolute return in the range of +/- 15%
Negative – Expected Absolute return of over -15%
Coverage closure – No further update on the stock
% weightage – allocation in the subject stock with respect to equity investments

Short term – Less than 1 year
Medium term – Greater than 1 year and less than 3 years
Long term – Greater than 3 years


Research Analyst Details

Name: Ekansh Mittal     Email Id:    Ph: +91 727 5050062

Analyst ownership of the stock: No

Details of Associates: Not Applicable

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