Slowly but surely Dewan is seen re-rating from last two years. If they continue delivering similar performance, days are not far when market will reward them with similar valuations given to the fancy ones.
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I consider ‘Dewan Housing’ like seasonal stock whereas Gruh Finance is all-weather stock. Dewan can do well for some time specially in bull phase but when tide turns it will take a bigger hit.
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Dewan showed a steady growth rate for more than 5 yeArs now. Also management, while not in Gruh(HDFC) pedigree are still experienced for decades in this sector. Dewan also caters more toTier2 and 3towns which are under-penetrated and relatively has less competition. While Dewan is valued at half of sector PE, Gruh is valued at twice the sector PE. So the market has to answer whether this difference is justified. I find Dewan to be less risky at this price than Gruh.
As expected Dewan is quickly catching up with the pack with almost doubling of share price in the last couple of months. Good times for the entire sector.
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I am wondering while all the established players are saying there is a slowdown in Real Estate. Developers and HFCs are saying Afforable housing is not picking up. Gruh has the best reach among Tier #3/4 cities, what is the secreat sauce behind Dewan’s high disbursal ?
Partially answered here - How the disbursal could be higher and the risks. Am not implying DHFL is taking a risky route.(Discl. Invested in DHFL, not GRUH). An article appeared in ET today.
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Total outstanding shares is around 36.53 crores…
Trailing sales of gruh is around 1609 crores…
So sales per share is around 44…
Now price to sales is 508/ 44 comes around 11.54…
Dizzying number isnt it…implies to justify the current price assuming there is stagnant growth(1609 crores every year for next ten years) and if gruh manages to payout all its sale as dividends it takes 11.5 yrs to get back the price we are paying per share of gruh.HEAD SPINNING VALUATIONS…
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3yr growth in Sales of around 15%, nothing stellar. Many companies are positioned to deliver such outcomes. So, one concludes that either Gruh will consolidate for a very (very) long time, or correct to levels of PE 35 (price 300) which is its average PE.
Gruh gets its high multiples for predictability of a well managed business. The growth can continue for decades if not more…RoE of 30%+ with very low NPA’s…this business model has been proven over last many years…new avenues of growth emerging including affordable housing…subsidiary of HDFC gives it the added comfort…
Many other HFC’s are just chasing growth for the sake of it…can one explain why they are not able to report RoE of 30%+ like Gruh?..will be interesting to know…
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Gruh stopped giving real estate loan because it smelled rat here. That is why growth is less. Management is confident of 30% growth in disbursal. Prepayments are more in non salaried class bringing down growth in loan asset. Anyway 20% growth with zero NPA is not less. High growth hides NPA.
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I have noticed few of the valuepickrs questioning the valuations of Gruh, which is clearly on the high side as compared to its peers. But as per my observations, Mr. Market pays huge premium for good quality company with pedigree management. Examples are recently listed companies like Avenue Supermarts (D Mart) and HDFC Life. Both of them are great companies but their valuations are quite expensive.
Gruh has shown consistent performance backed by HDFC. I think these are and will remain the reasons for its valuation premium over its peers.
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If one is prepared to see ones investment stagnate for 5 to 10 years, till the EPS catches up with its Price, then Gruh is a good investment.
To cite two verifiable examples:
In case of Infy, from high of 2000 to lows of 2012 was a long period in which the investor got zero returns. And even after that the normalized share price increased only around 30%… so what is the point in investing in a good company?
Another case which is a better (worse) example.
HuL, from 1999 to 2011 gave zero returns. If inflation be included, then negative returns for investing in a stellar company at excessively high PE.
For Gruh PE of 55 means, at current PE it will take 275 years for the management to fully give back your invested capital if it disbursed 20% EPS… This is unattractive.
Furthermore, Gruh is not bear-proof. It has corrected 30% several times in the past. And once in times of a real estate boom. Now, the ground reality is that real-estate is doing really badly, then how much could Gruh and other HFC correct? Which has more value?
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About the point on real estate doing really bad, I am not sure if it is really bad or just not good enough. Also, there is a lot of push from government for price reduction - the latest being a news (un confirmed) that government is planning to tax real estate inventory lying unsold for more than a year. If this gets implemented, then prices should correct resulting in more transactions (buying) happening.
why this Gruh PE so high? can any one explain please?I am new to investments. cant understand the logic behind gruh.
Your comparison with low stock returns given by HuL and Infosys in the periods you mention can be misleading
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HuL: In the 12 year period from 1999 to 2011, the company hardly grew PAT by 2.1 times. The profit after tax was Rs 1069 cr in 1999 and Rs 2296 cr in 2011. The stock price can’t be expected to gallop if you don’t show growth. Unlike Gruh where growth outlook is very positive (MD talks of 30% growth in disbursements going forward)
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Infosys: In 2000, Infosys was trading at a PE of 200x (MCap of Rs 59,000 cr and PAT of Rs 293 cr in 2000). With growth slowing down, the PE of 200x could not be sustained. Still it gave around 2.9x return from 2000 to 2012 (PE fell to 20x in 2012; PAT just grew by 14% from 2009 to 2011). Firstly, Gruh is not trading at the exorbitant PE of 200x nor is its growth slowing down. The MD seems ever more optimistic.
Yes, if you believe the best of growth for Gruh is behind and growth will slow to 10%-12% p.a., then the valuations are not sustainable. My view is that Gruh has a long way to go. Different opinions make a market.
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Gruh will not correct till HFC rally has steam left. If what you are saying comes true then the holders of other HFCs need to worry even more. Gruh is industry leader backed by strong parentage. What happens to PSU backed Canfin, PNBHF and Repco and those backed by dubious promoter/groups like DHFL and IBHFL?
A bit old post please go through it u will know y it’s expensive:
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Infy had a very high PE of 200. That was the problem, the reason why investors lost a decade.
What is a high PE for HFCs, is the question?
Infy was the cutting edge back then. It was something new and mysterious. Margins and volumes of business were great. Nothing compared to what GRUH can even imagine to achieve as its business model is bulky, compared to what Infy was (or is). Therefore, the current PE of Gruh is as high as it can get. It is more than twice that of the industry average. There will be a reckoning.
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Some companies that fall more than the industry leader, give a better investment opportunity. Canfin, Repco, DHFL are here to stay. So if they fall severely compared to Gruh then they probably will become better investments. After all we are concerned about how much returns we can get, along with safety of capital.
DHFL had fallen over 50% a few times in the past. But GRUH not that much. Therefore, one can count on buying DHFL 20 to 30% cheaper than GRUH. Does that much discount justify buying DHFL? If not, then how much discount would you want in DHFL? Because, bear market is around the corner and we better be prepared and have answers to such questions.
If you feel a bear market is around the corner, then ideally you should exit from all stocks 100% and be in cash.
If not, then it is better to be in market leaders. Like someone mentioned, the inferior HFC stocks are reporting huge growth but there is likely hidden NPA’s which will come out sooner than later. And it is the inferior stocks which get hammered in a bear market and you will not have answers why they are down to such low valuations.
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