GRUH Finance - mini HDFC

(MHS) #382

And they pay devidends also and generate superior return ratios than most of finance companies.

One has to study and understand how these guys able to do the above i.e; being a lender - no equity dilution, dividend paying and generating high returns…simply their business model is superior than their compititors - This is the crisp answer to the valution puzzle all r discussing.

Some numbers from Screener

Compounded Sales Growth:
10 Years:24.8%
5 Years:23.95%
3 Years:20.71%

Compounded Profit Growth:
10 Years:24.15%
5 Years:19.78%
3 Years:18.86%

Return on Equity:
10 Years:30.21%
5 Years:31.42%
3 Years:30.9%

(Amit Jain) #383

These numbers are already factored into the current price. We all also agree that Gruh is expensive. However, what we want to know, whether or not it is justified to pay so much. The sector PE average is around 16, Gruh is 56 !

There is one way to get a perspective on this:
EPS: 8.9, CMP 507, Yield 1.75%
Assuming a 15% growth in EPS, it will achieve a 10% yield in 14 years

Rollback a year. Same time in 2016.
EPS 8.9 CMP 320 Yield 2.78% (PE 36)
Assuming a 15% growth in EPS, it will achieve a 10% yield in 10 years

Note how, the Time has progressed one year, but price has done a run-up of 4 years in that time. This is the additional cost an investor will pay for joining the euphoria of the current bull market. The company is great. No doubt. But, the investor must be aware of this choice before making it.

Surely, this euphoria will mellow down in the coming months, and the investor will save a few years of this “run-up”.

I feel for Gruh, PE < 40, is the max an investor should shell out. Anything more is just giving into the “time run-up”. Might as well FD this money, and shift it back into Gruh when PE < 40.

PS: In this aspect, there are stocks in Pharma and IT that have gone back a few years. Wouldn’t those be good bets?

(pkk123) #384

I don’t think anyone is contesting that Gruh is expensive. I don’t think anyone is saying Gruh will make money in the short term. And even for long term people’s expectations are that it will compund at a reasonable 15% or so. Now if you remember, when Gruh was 5 times book 5 years back, Canfin was 1 times book. Canfin at its peak reached 7 times book while Gruh probably 15 times. Now if Gruh were to fall 50%, I am sure Canfin will fall 50% too or even more. So the logical corollary of your argument is that one must be out of all HFCs - at least till we see a health correction. I am also hoping Gruh falls 20% to 400 or so. Let’s see if that happens.

(us121) #385

Also, I would like to add one more dimension…

Many who are holding Gruh, may not make new purchase at current price. But may not sell as well.

Now question will be the concept of… you only hold some thing what you are likely to purchase every day at current price.
But than in one of the Sanjay Bakshi’s Article… he has given very good perspective from Charlie Munger on this topic. And hence it is not so simple relation as it is conveyed in simple English Texts.

(s) #386

Management is bullish. Government is spportive of their bz. Gruh finances lowest self employed houses. Has inroads to the consumer directly. Market has an expanded PE and quality stocks always get premium

(Peabody) #387

You are off the mark. In a Country like India where professional management and honesty is a rarity, Cos like HDFC and Gruh stand out.You will be shocked to know that we have just scratched the surface in terms of opportunity. Yes there will be period of lull in the prices but sorry Gruh will never become cheap. I did the same miscalculation in 2012/13 about Gruh. Till something disastrous happens -it is a one way ticket with at least 20% CAGR guaranteed.

(Amit Jain) #388

Cheap may be not… but reasonable yes.

Nifty remains at PE < 17, 75% of the times. Just like that Gruh is below PE 40 most of the trading days. But now is at PE 60. So, no point in being euphoric now when risk is high and for stable constant returns.

HDFC group has great reputation, and this fact is handsomely factored into its Share price. It is about time this gets factored in too.

PS: Why rack ones brains for expensive investments. It is Herd-talk. Lets look good investments that are cheap, like Silver and Gold… they are near all time lows. If you can buy and hold, then in good times, Silver tends to get very explosive.

(s) #389

Agreed it is not going to be double in next 2 years as it has doubled in last 2 but still will fgow high double digit for good number of years


Its up 8% today. anybody knows the probable reason?

(prash.peru) #392

Just hit upper circuit today.


Just when I was thinking that quoting at P/B 20 and looking insane, market takes it to 24 today.


And the market cap of the company is almost double the size of its loan book…

(Yatharth) #395

I thought valuepickr forum can throw some light on this. Anyways got out of the counter at 650. After 5 years. A big mistake or right decision?


A big mistake, in my humble opinion. But I could be wrong also. :slight_smile:

Even if Gruh crashes by say 70% over the near future, it is a great business to hold on and pass on to next generation. I feel over the long term it is still a hold for me.

In the past, I’ve made a very costly mistake by selling my stake in Avanti Feeds around Rs 500 (bought at Rs 90). I thought it was trading at an expensive valuation.


But markets are at high valuations now in general compared to even 1 year ago. So how much price appreciation can happen from now is a big question mark. I feel there will be buying opportunities at lower levels in Gruh, if one would watch market regularly

(us121) #398

It will be very interesting to plot price concern related comments on this forum and versus the stock price for last few years. what i see is this cycle of concerns versus one more consistent price performance continues. leave aside one day jump in price or circuit. Story is worth grasping on little larger scale of 6 months to 1 year. Very few business one finds where horse and jockey both are long term dependable. They may not pull the rabbit from the hat but they will do what very few can do again and again and again…

These comments has no relevance with today’s price increase. this is more from a yearly price plotting perspective. Seeing its prices on daily/ monthly basis to me does not make a sense. important is to keep an eye on overall business and be alert only if we find them doing any stupidity.

(Kumar Saurabh) #399

Mistakes or success happens when you fail to reach or reach desired goals. So, till you make desired return on booked amount as per your financial goals, it hardly matters whether you made through asset X or Y

(Sarvesh Gupta) #400

Its intriguing to see so many divided opinions on Gruh. There are certainly valid reasons which make Gruh deserve the premium over other players but the question is how much of a premium.

I am tempted to quote few excellent books on how the supply side of a business fundamentally changes the dynamics of the business in the mid to long-term rather than the demand side. Demand-side story and potential of Indian housing market is already known to everybody and hence the supply side (also known as competiton) is rapidly increasing. For just one example, somebody like Piramal is also venturing into the same and plan to make a 10k+ cr book in this business in next few years. And this is just one example, there are many many more. Try to think in this way - that HFC business is low NPA, has high growth potential etc. etc. is known to everybody. If it is known to you - a small investor everyone knows it. So the competition is increasing big time. At one point of time, and especially with the digital and tech models penetration, transparency in pricing norms (all HFCs fool borrowers big time in a interest rate going down scenario with rates being decreased only for new customers) that will have to be set by regulator and increase in competiton manyfold will lead to rapid lowering of profitability as well as slower growth for individual players. That is what will happen in a big way, in my opinion, in the next say 2-10 years. But the problem is that markets are extremely myopic and also tend to extrapolate past into future. Do not underestimate the power of a smartphone and high speed data in the hands of Indian consumer. Gruh is not Coca-cola (perhaps few people think of Gruh like Coca-cola and Buffett’s inclination to never sell it - although it hasnt been a wise decision for him since 1990s when the stock became fully priced) - think of it from a customer point of view. While you may be in love of Gruh stock because it has only moved in one direction - does the customer really care about taking a loan from Gruh vs some other player. For customer, the only thing which matters is price, service and distribution. But I drink only Coke irrespective of anything. And I hate Pepsi. The moats around HFC business is shrinking in my view especially in this digital world.

Infact, financial space is ripe for disruption by technology players (one example of the same is how Zerodha from no where has now become the largest retail broker in India). I hope that financial players try to disrupt themselves by first reducing their profitability and focusing on scale rather than get disrupted.

In the end, Markets sometime remain crazy for long period of times and anybody justifying a P/B of 24 is crazy too. I feel best case scenario growth for somebody like Gruh maybe 20%-25% for the next decade but the profitability will come down and hence earnings per share growth will be less than 20% and hence they will also need to raise funds as their profitability wouldn’t be enough to fund the growth (there is just no way HFCs will continue to make 20%-30% RoE will competition coming in and with digitization making it very easy for borrrowers to compare and with many tech savvy players ready to disrupt). I just can’t believe so many young, hungry, energetic entrepreneurs in a sector with such low entry barriers will allow a no-brainer scenario of 25% growth as well as RoE. And unlike insurance where trust is key because customer needs to get paid, loan giving is an activity where customer needs to pay & servicability is increasingly becoming commoditized and hence pricing is supremely important. I foresee fall in profitability for most other lenders like private banks as well - some of these are earning RoAs of 2% and that’s just crazy and will not be allowed in a free market.

And coming back to initial question of how much premium is justified - Somebody gave an example of what happens if markets are shut for 5 years and that holding Gruh is so great etc. etc. I want to ask one question - say I bring you the entire Gruh management team and board of directors and put in 100 cr and come to you and say that okay I have got the entire Gruh management team, please pay 2400 cr and take over 100% of business with 100 cr in equity and unlimited lines of credit from HDFC Bank. Will you do that. Even though because of smaller size, it may be even a better growth story than Gruh is. I think the most optimistic PE funds will give you a valuation of 600 cr but no more.

PS - Somebody has said that predictions are difficult, especially about the future. So do your own research. I have no position or interest in Gruh but this is what I honestly think will play out.

(Chirag) #401

I am not invested in GRUH but the recent moves got me interested in answering the question: “What type of returns can someone expect in the next 2-3 years if they invest at 700 odd levels?”

Current PE of 80 is an aberration. 50 can be considered as a good defensive long term average. (Note: 50 itself is high but then market has been giving this special status to GRUH, so who are we to argue!)

So considering a PE of 50 and FY 18, FY 19 and FY 20 growths at 30%, one can expect a CAGR return of around 10% from the current levels over the next 2/2.5 years.

Of course if someone would have bought it last week at 500 odd levels than the CAGR returns of the next 2/2.5 years would have been 30%.

But one must remember that these are ideal situations, with no margin of safety. i.e. GRUH has to do a 30% over the next 3 years.

Now if the company does a 20% growth in FY19 and FY20 (instead of 30%) then the market will not give it a PE of 50. Assuming it gives it a PE of 40 because of this decrease in growth then one will not make any money from current levels.

To summarize:

  • People holding the stock from 500 levels can continue holding (before 10th Jan 2018)
  • People who entered at 600 levels should think of booking profits. They made a quick 15% which is great!
  • At 700 Rs, risk-return is unfavorable to buy the stock. Company has to do better than 30% YoY for 3 years to justify current valuations. And if it slips even a bit on that front then there can even be a loss of capital.

(us121) #402

As such many confusion arise while discussing any stock as comments necessarily may not be on fresh purchase perspective but at times from holding perspective. That too at times for comparatively low priced purchases.

Also at times on highly opportunistic time I personally do hair cut type selling for portfolio allocation or with reasonable expectations of price to fall back with good margin.

Truly speaking I will be scared to purchase Gruh at current price. And I know the next question will be than why I hold. I believe that is already been discussed elsewhere in great details.