GRUH Finance - mini HDFC


(Somenath Paul) #423

I bought Gruh at 221 and have been buying Gruh for over 7 years.

I feel sometimes a 20% in gruh is too much to ask for and someone can offload a bit.

But make no mistake to allocate that capital to other stock thinking that you are smart.

I have myself failed to sell the stock on Friday at 713 but in hindsight I feel it is a mistake.

Having said that I am super bullish on another two decades on Gruh. But these one time opportunities should be expoited and sold into to buy it back at lower price. (And making no mistake to allocate in other companies).


(Rajneesh Sharma) #424

i found this old piece on NBFCs during 2007 credit crisis.
http://www.livemint.com/Money/fYPjIIcDOQ7xMawB7IefgJ/Business-model-of-NBFCs-being-questioned-as-crisis-intensifi.html


(atul1082) #425

It has fallen badly today & the lowest price was 564.Even at this price , its P/E & P/B is the highest.Whats your opinion about entry at today’s closing price & the reason thereof.It would help me.Thanks for early response


(Chirag) #426

Results are just out. Next trigger will be any housing related announcement in the budget. I suggest you let the stock consolidate at a particular level. Don’t rush in to buy.

According to me 500 is the only decent price to buy GRUH as that is where it had spent almost 5 months consolidating. Even at that price, the stock is priced to perfection leaving no margin of safety.


(Value Seeker) #427

I am ambivalent about the housing sector/ RE revival in the near to mid term. In Bangalore at least there is ample supply but muted demand. Anecdotally, one of my friend has been trying to sell his apartment in a good area for last 2 years. Asking price has come down sequentially by ~20% (this is a 4-5 year old ready to move in apartment with amenities). Still no buyers (and it is not because of vastu :slight_smile: ).I also went around several under construction projects to check how they are doing. Seems to me that many projects have slowed down and are inching along.

There seems to be a disconnect in terms of the HFC business growth vs. the state of RE (my personal view). Much hype around housing for all, low cost housing, budget etc.

What real factors (key monitorables) are VP members considering that gives them confidence that the business will grow to backfill the stock expectations? . Looking to hear back and get some insights.

Disclosure: Was invested in Gruh and LIC HFL but sold to reinvest elsewhere


(newone) #428

Yes, it seems to be a buyer’s market everywhere. Would be good if we can access some real estate consultancy company’s nation-wide report on this. But we have to remember that Gruh primarily operates in a segment which is into EWS / LIG category and mostly lend to self-employed people. Would be really difficult to access that kind of market to get an idea about the demand.


(nil_71) #429

Investing in Gruh, we need to move beyond metro cities. 40% of Gruh disbursement as on 31st Dec 2018 in Rural areas. Gruh has major presence in places where population is less than 50000. Just look at AR 2017.


(Kumar Saurabh) #430

In case my assumption is correct that the flat your friend is trying to sell is 40 lakh+ then, I think <20 lakh has never been an core investor market unlike > 50 lakh segment So, drawing inferences from a sample from different price point market and applying it to business in different price point may lead to wrong conclusions.
It would be scaring if what you said is happening around 20 lakh segment but usually in this segment , people buy for self consumption. Real estate market varies a lot in terms of type of builder, type of location, type of price range. In fact , if one tracks latest quarterly data, real estate has grown from -30% YoY to +25% YoY (highest price projects de-growing and lowest price projects growing). The challenge of real estate has not only been oversupply but mis-priced demand-supply based over supply with lack of professionalism and execution. So, i think drawing inferences on wrong samples may not lead to right conclusions and may need some caution in over all due diligence process. Pardon for this explanation if what you said was for around 20 lakh segment :slight_smile:


(Value Seeker) #431

Valid points all. For argument’s sake I am looking at the flip side:

Yes - you are correct, the price point is 40L+. However, I am normalising the price point/ demand with the type of primary RE market in the city. There will be value migration to the mid and higher segments over time - especially given the aspirations of our current demographics. So I do not believe that there will be much economic attraction for builders in the LIG/ affordable space

W.r.t. demographic that have been outlined here (i.e. self employed for personal consumption) and type (affordable, in Tier 2 cities) - I think we need to look at this more closely. Traditionally this has always been a riskier profile to give loans to.

40% of Gruh disbursement as on 31st Dec 2018 in Rural areas. Gruh has major presence in places where population is less than 50000

Lastly, what exactly does the growth number mean here? The HFC loan disbursement data needs to be looked at in conjunction with other factors such as - total supply, unsold inventory, project completion/ delay etc. The growth for loan disbursement is a leading indicator and hides the risk. The risk arising from high growth today will surface only in the future and is a function of the organisation accepting it in the first place. So this causes me pause from taking a long term view (I have seen 20years comments in this thread). Also, like gravity NPAs will appear :slight_smile: not a question of if but when…

Just my thoughts. Open to hearing counters…


(Kumar Saurabh) #432

Thanks for your comments buddy. Below are my views:

Historically and currently, from price point and market segment perspective, these markets work in different manner. Also, the affordable housing is a sector where multiple players operate. Some players in value chain would be stronger and some would be weaker based on porter theory. I would not get into detail of that as that is a separate discussion but what is true for builder is not the same for financier.

Taking last 10 years of data, Gruh has learnt the skills to show consistency of growth and asset quality. Again, I would love to see a 10 year historical NPA comparison based on income class/retail vs enterprises/in retail salary vs non-salary to say with conviction that lower economic strata defaults more frequently, specially the salaried class.

This may be true on a generic basis but then companies are analyzed on specifics. point no 1 that by nature of business a EPC contractor to a developer to a retail customer possess very different set of risk that financier. A financier lending to a property which has been purchased for investor purpose with a compromised loan value with distorted salary to disbursement ratio in a highly competitive demand supply micro market is very very different from a financier lending property purchased by an end user with safer salary to disbursement ratio on a ready to move in property. Who lends to which customer in what price point in which micro market with what risk exposure at what economic cycle with what kind ALM balance - decided why some companies have high NPAs,some have low NPAs but turns higher and some companies consistently maintain low NPA when they do not compromise balance sheet quality for growth.
Summarizing, I think devil always lies in detail and lending and real estate markets are no exception.


(mrai74) #433

GST relief for low-cost homes, 1st-time buyers

GST reduction to reduce prices by 4%

Another booster for affordable housing by reducing GST to 8% from existing 12% on purchase of houses availing of the credit-linked subsidy scheme (CLSS) under Pradhan Mantri Awas Yojna, and of those houses that are constructed in a project that has got infrastructure status. This will extend the tax benefit to an affordable housing project, which has been given infrastructure status also.

As with CLSS scheme, a first-house buyer having a household income of up to Rs 18 lakh per annum can avail a benefit of up to Rs 2.7 lakh while buying a house or apartment of up to 150 square metres (1,615 sq ft) carpet area.

“The decision will give a push to the real estate sector, particularly affordable housing, as prices will fall by up to 4%,” said Getamber Anand, chairman of the Confederation of Real Estate Developers’ Association of India (Credai).


(s) #434

My guess is mildly over priced for time being but if affordable housing will last a decade it will still keep rising, as it is a key player in the under penetrated segment. Caution at current levels, can it rise higher…let the Markets decide. It is markets love affair and everything is fair in love and war.


(Kumar Saurabh) #435

Thanks for your comments buddy. Below are my views:

Historically and currently, from price point and market segment perspective, these markets work in different manner. Also, the affordable housing is a sector where multiple players operate. Some players in value chain would be stronger and some would be weaker based on porter theory. I would not get into detail of that as that is a separate discussion but what is true for builder is not the same for financier.

Talking to last 10 years of data, Gruh has learnt the skills to show consistency of growth and asset quality. Again, I would love to see a 10 year historical NPA comparison based on income class/retail vs enterprises/in retail salary vs non-salary to say with conviction that lower economic strata defaults more frequently, specially the salaried class.

This may be true on a generic basis but then companies are analyzed on specifics. point no 1 that by nature of business a EPC contractor to a developer to a retail customer possess very different set of risk that financier. A financier lending to a property which has been purchased for investor purpose with a compromised loan value with distorted salary to disbursement ratio in a highly competitive demand supply micro market is very very different from a financier lending property purchased by an end user with safer salary to disbursement ratio on a ready to move in property. Who lends to which customer in what price point in which micro market with what risk exposure at what economic cycle with what kind ALM balance - decided why some companies have high NPAs,some have low NPAs but turns higher and some companies consistently maintain low NPA when they do not compromise balance sheet quality for growth.
Summarizing, I think devil always lies in detail and lending and real estate markets are no exception


(Rajesh) #436

In March, April 2018 Gruh is going to complete its Rs 400 cr profits annually. It will continue to grow 20%+ for very long period. In next 10-12 years it will cross Rs 4000 cr profits annually. Company making Rs 4000cr annual profits is 24th in Indian listed companies presently. So it is a story from small cap to mid cap and mid cap to large cap. Why I am so confident because it is a “Great Company” in finance sector with wide and deep moat. It lends to a sector where everybody has scope to grow if he has efficiency to do business in this category. Presently no one has ability to do business in this category. It is proven again when Ramdeo Aggarwal yesterday told that Home finance business contributes nothing in profit of Motilal Oswal Financial…
Now take a simple math, in next 10-12 years its market cap will be 4000*32 = Rs 128000cr. Now consider cost of capital 15 % including margin of safety i.e.the long term BSE growth. Re 1 invested at 15 % CAGR will become Rs 5.35 in 12 years. The present value of Rs 128000 cr comes to 128000/5.35 = 23925. Present fair value comes 23925/36 = Rs 664 as total number of shares are 36 cr. Now add dividend to it one going to receive in next 12 years. I consider Rs 3.5 for March 18. Now grow it at 20% CAGR and discount the receivables at the rate of 15%. Total dividend to be received today comes Rs 59 so the Fair Value comes around 664 + 59 = Rs 723.

Some thoughts

  1. Most annoying thing for many fellows here is Exit multiple 32 what I understand with so long discussion in this thread on high valuation of this cheapest Gem of HDFC Group. I have my own rationale here, many may not agree so we have to agree to disagree.
  2. Gruh ROE is 30 % + so it can grow at 30%+ without taking help from shareholders/ market just it has to do one thing - stop increasing dividend. Not bad if we do not take dividend and grow the money at high CAGR like relaxo. This ROE is highest in Finance sector and sustainable.
  3. Suppose Gruh stops growing today, the payout ratio will become 90% immediately from 30%+ because company does not require money to grow. It will still retain 10 % to beat inflation and will grow at above inflation rate. Dividend will become Rs 10.5 and yeild 1.75%. Here I consider Rs 3.5 dividend on 1st April 2018 and payout 30%+. So 3.5*3 = Rs10.5.
  4. Once this company stops growing and growing just above inflation rate only PE will come down to 32 or 30 so it is one third of present PE. So the dividend yeild will become 1.75*3 = 5.25%. This figure is near about bond rate, not bad, still growing to beat inflation.
  5. So I think this way to consider exit PE 32 is well calibrated and rational as per my thinking. Here the main assumption is the sustainability of ROE i.e. 30%+. It would help if anyone has counter thoughts for its sustainability.
  6. Sanjay Bakshi says that Great Company charges genuine price to sell its product and brand is the guarantee for genuine price. Here Gruh charges very reasonable interest rate 1-2 % above others and give 30%+ ROE. This way it skips the help of stock market i.e. Equity dilution to grow at reasonable rate. Here main point to be noted is Gold loan, Micro finance etc charge heavily but they are not able to achieve this ROE/ ROA. Other new entrants Repco, Motilal, Manappuram etc charge more than Gruh but could not make business model yet. This is the Moat what Gruh has. इसे हिलाएगा कौन ? कोई नहीं.
  7. As the GDP grows, finance sector will grow double of it. So the opportunity size for
    Gruh is no issue. It can grow for infinite period.
  8. Here I have taken the base case of 10 times of profit only, if discounts for 20 years growth, fair value will increase too much. If one considers COC below 15 %, it will go more high. I dont want to indulge here.

Risk

  1. Major risk is if HDFC loses its Midas Touch. So we have to track whole group efficiency i.e. how they resolve their conflicts, issues, their management policies/ systems etc.
  2. Second risk is - once company grows too large how efficient they are to manage it like today. It will be their test as I think this business is difficult to manage in comparison to Bank/ AMC/ Insurance etc.
  3. Third risk and main risk is India story. We dont know when this “Globalization, Liberalization” can create 1997 Asian crisis in India like high inflation, high interest rate, high devaluation of currency i.e. total chaos. This the eficiency of our government and certain global conditions, no one knows so no need to discuss.

When to sell -
Great company giving ROE more than its high growth rate is never to sell, its a great compounder. Its always in a rerating mode till the the ROE is intact i.e. Moat. Fair value of these companies is continuously on rise.
Reasonable profit growth >15%+ high payout >20%+ high ROE > 25 % = wealth builder

High growth + high payout+ sustainable high ROE = continuous re-rating till large cap.


(gautham1) #437

Surprised to see the resistance today. (of course it can fall in the coming days). At the same time a lot of other much cheaper HFC stocks fell hard today.
Only during such carnage we will think about quality.


(Marathondreams) #438

Looking at new companies registering as HFCs and growth in all HFCs in past 1-2 years, this article seems well timed. If delinquencies go up eventually due to indiscriminate loan approvals without proper due diligence, it is better to remain with high quality stock like Gruh. In that scenario, Gruh will also get affected but much lower due to quality of their approval processes.

Disclosure - Invested in last 2 weeks due to lower price


(bharat.jain) #439

everytime cheap housing loan comes i remember this movie Inside Job https://www.youtube.com/watch?v=FzrBurlJUNk doesnt matter we dont have those credit swap, CDO now … but dont forget this movie …


(manivannan.g) #440

Thanks for your insights Chirag ! since nothing changed from the fundamentals, with the current situation how do you interpret ! Looks like whoever missed the bus, can hop on with even more discount :slight_smile:


(Chirag) #441

I am wrong guy to answer that question. I am not a fan of GRUH type stocks, no matter how great the business / management / fundamentals are as they don’t give me the margin of safety that I desire. I had commented on this thread only because it caught my attention because of the huge rally. And at that price I firmly believed that the stock would come down to 525 levels sooner or later.


(Capsule91) #442

I was very inspired by this thread and learnt a lot…

I have seen forecasts of good cagr growth for the price, just a little of input from me, the monthly charts are changing for this stock, while it is and will remain in a very long term uptrend accorsing to ichimoku could , but the slope of the channel is changing gradually towards a 10pc cagr …please have a recheck…

All the best thread participants

Disclaimer… Not invested , not interested…