I had attended Gruh’s AGM held on June 26, 2015. The key points discussed in the Chairman’s (Keki Mistry) speech are give below:
Gruh was the first specialised rural housing finance company and has provided home to over 2.50 lakh families
There has been built up of unsold inventory by developers in some pockets but company is mitigating that by focussing on lending for purchase of resale houses
Deferred tax liability (DTL) on special reserve will never be required in the future. Since DTL has to be created on retrospective basis, NHB had given a directive to creating it in the ratio of 25:25:50 for FY15, FY16 and FY17.
FY15 was the 16th consecutive year where dividend payment has increased compared to previous year
The below points were noted by me for the questions asked to the management by the shareholders:
Answered by Chairman:
On the point of passing on the interest rate cut to the customers, the Chairman highlighted that the when the interest rate cut on housing loans is passed to the customers, the impact is less on account of reduction in tax benefits.
On being asked about the current state of economy, the Chairman replied that the investment climate is improving and the companies are more optimistic than they were a year back. With the government’s thrust on building smart cities and approving budget for infrastructure projects worth Rs.70,000 crore, the capex cycle is expected to pick up
On being asked about the growth plans of the company, the Chairman highlighted that India has very low penetration for housing as it has low mortgage/GDP ratio of 9% as compared to 90% in Denmark, over 80% in UK, more than 60% in US and around 17 - 18% in China. With India having majority of its population with average age of below 30 years, the average age of customers with HFCs of around 35 - 38 years is expected to reduce.
The MD (Sudhin Choksey):
On being asked about the average loan size and target income profile of customers, the MD answered that the average loan size is around 8 - 9 lakh and average income of customers is in the range of 30,000 - 40,000 per month. Gruh doesn’t lend to customers in economically weaker (below poverty line) section of society.
One being asked about the increasing competitive intensity, the MD answered that although the competition has increased with 60 recognised HFC’s, the management will try to maintain the spreads and yields on the loan. What differentiates banks and other HFC’s from Gruh is the customer service and client involvement. In many cases, the customer has also borrowed for their second home from Gruh.
On being asked about the equity raising plans of the company, the MD replied that they are not planning to do that in the near to medium term. As per NHB guidelines, a HFC can borrow upto 16 times net owned funds (NOF) and Gruh has currently borrowed upto 11 - 12 times NOF. They can borrow upto Rs.12,000 crore before the company thinks of raising equity capital. The company might also look for securitisation to free some funds and lend more.
On being asked about the competitive intensity in the new states that Gruh has entered, the MD replied that they havent been able to successfully penetrate in the new states that they have entered and there is lot of room for growth in the new states. The have recently entered Uttar Pradesh market and will also look to enter Bihar and Jharkhand in the current financial year.
Thanks @ankitgupta. Was eagerly awaiting an update on AGM from someone, who attended. Thanks again. What is your net takeaway, after seeing the body language of folks in leadership there? I think, given the DTL effect, esp the 50% component coming in next year, I am ruling out totally any outsize returns for atleast 2 years. Canfin and DHFL (inspite of the several issues discussed in this forum) may have an edge !!
PS - Not a buy or sell reco. Pl do your due diligence
Disc - average price 240s / 1/3 allocation within HFC basket
Hi @KS16. I think we have to look at long term prospects of the business. To be very frank, I felt that the body language of the management was indifferent. As far as they are able to grow their loan book by more than 20% with delinquencies in check, I wouldn’t be concerned about DTL. Also, this year we will be able to see growth in profit as DTL had affected FY15 profits as well.
Gruh Finance declared its results .
Summary :
Revenues 294.39 vs 241.61 (21.8%)
Finance costs 190.18 vs 154.92 (22.7%)
Expenditure 219.54 vs 180.10 (21.9%)
Profit before tax 74.85 vs 61.52 (21.7%)
Tax 24.54 vs 19.61 ( 32.7% of profits)
PAT 50.31 vs 41.91 ( 20.04%)
EPS 1.383 vs 1.157 (19.5%)
Toal EPS is at 5.566 , Loans have grown 26% from 7388 to 9329 crores. Provisions have been at 11.68 crores, aggregate NPA s at 0.52% vs 0.44% , Net NPA s at 0.15% vs 0.04% . Disclosure : Invested . This is not a buy/ sell call.
So as expected this year, NHB DTL impact for all HFC will be nullified due to like to like comparison from base year numbers.
So, all HFC numbers will be great for all 4 quarters including Repco and Can fin.
loan disbursment for the qrt were 773crs compared to 690crs in the previous yr indicating a growth of 12%.however the loan portfolio as of june30th has increased by 26%.company press release
I have been trying to highlight the perils of LAP in different threads (Capital First). But it came as quite a surprise to me that Gruh had a such a big exposure (7.5 cr.) under LAP on property which is valued at 22 cr. to just one person. A Royal person !!
And that Royal person fails in his EMI payment, gives some post dated cheques and now those cheques bounce. Welcome to court case.
I continue to be negative against those mortgage companies taking big exposure to Loan Against Property under the guise of home loan. They are not same, at least in the head of borrower.
This particular account exposes that this could happen to the best ‘low cost housing lender’. I don’t know why did they exposed themselves in this way. Recent Ambit report had highlighted dangers of LAP among HFCs.
Yes however please see prop worth 22 crs being in posh malabar hills mumbai (perhaps more ) - since he could be arrested on chq bounce case he must be going to pay up or else they will auction the property and make some good profits on the transaction ?
Saw an advertisement “HOME LOAN FOR ALL” along with a toll free number (18002335300) from Gruh Finance in yesterday’s prajavani newspaper (leading kannada daily). Good to see Gruh doing advertisements. I hope they are getting serious about the market beyond Gujarat and Maharastra.
Disclosure: Invested
From what I have been observing about the urban markets in Gujarat and Mrashtra - Gnagar, Ahmedabad, Pune and Mumbai, it seems that investments in RE have slowed down considerably.While the target segment of Gruh is completely different, there is bound to be a trickle down effect and it would be interesting to see how the loan book grows in the coming quarters.
This is the best time for Gruh to expand (hopefully proactively, not olnly through referrals) and as the MOSL report says, UP is the place to be. Though they have a grand total of 1 branch in UP as of yet.
Disclosure: Invested, hoping for further consolidation before adding more.
The revolutionary effects of payment banks and small banks have been talked up by market commentators and tech barons.
Small banks have a tech based low cost set up plus a mandate to lend 75%of its loans to the privileged sector - below Rs 25 lakhs. As this article points out small banks will affect existing institutions which lend at a higher rate to this category.
This will affect Gruh, Repco HFCs and shorten their runway significantly.
Does gruh and repco have a economic moat in its experience with credit appraisals of unsalaried / privileged segment? Credit appraisal skills which will take time to develop for the new small banks?
