GIC Housing Housing Finance Ltd - Say Home, Sweet Home - Shares, Sweet Shares

GIC Housing Finance Limited, [ GICHFL ] was incorporated as 'GIC Grih Vitta Limited' on 12th December 1989. The name was changed to its present name vide a fresh Certificate of Incorporation issued on 16th November 1993. The Company was formed with the objective of entering in the field of direct lending to individuals and other corporates to accelerate the housing activities in India. The primary business of GICHFL is granting housing loans to individuals and to persons/entities engaged in construction of houses/flats for residential purposes.

GICHFL has presence in 27 locations (24 Business Centers & 3 Collection centers) across the country for business. It has got a strong marketing team, which is further assisted by Sales Associates.

The major promoter is General Insurance Corporation of India Ltd which has a 49.27 per cent stake in the company. FII’s who had 13.47 per cent stake as on 31.3.2009 have reduced their holding to 6.13 per cent as of now. Who said FII's can turn stocks upside-down, If that were the case, this scrip should be going downhill instead of going uphill!

The company’s generated Revenue was Rs.294.77 crores and Net Profits of Rs.22.76 crores in fiscal 2009-10 as compared to Sales of Rs.310.72 and Net Profit of Rs.18.8 crores in fiscal 2008-09. Thus, sales have decreased by 5.44 per cent while Net Profit has increased by 17.41 per cent. The company has done reasonably well considering the stiff competition it faces from HDFC, LIC Housing Finance, ICICI Bank etc. Besides, off late banks are being aggressive by offering “teaser rates” to home hunters, a dangerous practice.- thank God, loans are not sanctioned US –style.

I understand that SBI has finalized a proposal under which it will lend Rs.10 crores for buying land for housing against current sanction limit of Rs.1 crore considering 35 per cent margin. Guess SBI is the best place to get a list of the richest guys in India!

Net Profit margin in 2009-10 was 22.76 per cent and as such it is fast catching up with the HDFC, the leaders Net Profit margin of 25 per cent. LIC which is No.2 HFC in India has a net profit margin of 19.15 per cent.

GICHFL which generated EPS of Rs.12.46 in fiscal 2009-10 was quoting at Rs.91.95 on 1 June 2010, implying PE of 7.37. But now, the scrip has run up by 20.87 per cent to close at Rs.100/share at NSE on 2 July 2010, registering a PE of 8.82.

Housing finance is bound to increase considering the demographics of our country and the disintegration of joint family with each member of the house [ excluding husband-wife, of course ] wanting to purchase a separate house under some pretext or the other – income tax being the major reason. After all, you get deduction of Rs.1 lakh on the principal amount of the loan u/s 80 C. Besides, you can claim deduction u/s 24 from salary income, on the interest portion of the loan. The only problem is the unreasonably priced houses but on deeper thinking that too is no problem if we just think of present and future DIG’s of our country. DIG’s = Double Income Group

Peeping into the future : Considering the fact that the leader has a PE of 30, then even if we consider a conservative PE of 15 and EPS of around Rs13, we end up with a fair price of Rs. 195/share, an upside of 77 per cent!

Conclusion: Those who own GICHFL , verdict is : continue holding it. And those who don’t own it may, consider taking a call on the scrip, preferably on sharp corrections in order to magnify returns. GICHFL is not a multi bagger but it certainly has some value and presents one with an opportunity to make some decent returns in the short/medium term.

Kishor S. Khot, [Kishor@hbjcapital.com], Equity Strategist, HBJ Capital Services Pvt Ltd