GRUH Finance (Q2’11 Result Update)

HOLD GRUH Finance continued with its strong growth in disbursements and loan book
which grew by 70.6% and 25% respectively on a YoY basis. However Net Interest
Market Data Income (NII) has declined by 6.77% sequentially and 4.07% on YoY basis mainly due
Current Market Price (INR) 412 to contraction in net interest margin.
Target Price (INR) 450
Growth in loan portfolio remains strong
Upside Potential ~ 9%
52 Week High / Low (INR) 449/190 GRUH s loan book grew by 25% YoY backed by a strong growth in disbursements
GRUH’s
Market Capitalization (In INR Mn) 14312 which grew by 70.6% YoY and 26% QoQ.

Share Holding Net Interest Margins declined, but on expected lines

During this quarter, GRUH’s NIMs has declined by 45bps to 3.65% on the back of
Individual higher bank borrowing cost and lower yields on incremental lending. The monetary
26.6% tightening has led to an increase in the cost of funds, which has gone up from 8.1% as
Promoter 
&
&  on Q1
Q1’11
11 to 8.54%
8 54% as on Q2
Q2’11
11. We are expecting a NIM of 3.59%
3 59% for FY11 and 3.41%
3 41%
Promoter 
group
for FY12.
Corporate 
bodies 61.4%
2% Overall Asset Quality remains strong, however deteriorates on QoQ basis
Institutions
10% The Gross NPA has declined by 15.5% on a YoY basis and currently stood at INR 374.3
Mn which is 1.37% of the total loan portfolio. GRUH continues to maintain excess
STOCK SCAN provisions resulting in zero net-NPA position for the company as on Q2’11. However
BSE Code 511288 there has been an increase in absolute GNPA on a sequential basis due to increased
NSE Code GRUH focus on non-salaried segment which results into asset quality deterioration.
Bloomberg Ticker GRHF.IN
Valuation
Reuters Ticker GRUH.BO
GRUH is currently trading at a PEx of 14.01 & P/BVx of 3.4 based on the FY12
Face Value (INR) 10
expected earnings. We assigned it a target price of INR 450, which is 3.7 times its FY12
Equity Share Capital (INR. Mn.) 347.3 expected book value. We recommend a “HOLD” for GRUH, mainly because of its
Average P/E/PBV 12.98/2.92 recent run up and stretched valuation.
Beta vs Sensex 0 81
0.81
Average Daily Volumes (6 M) 78540
Particulars (in
Dividend Yield (%) 1.56 Mn) 2008 2009 2010 2011E 2012E
Stock Return (1 Yr) 111.8% Total Income 807.00 930.00 1,281.00 1,640.32 2,016.04
120.0 Growth 38.4% 15.2% 37.7% 28.0% 22.9%
100.0 NII 670.00 606.00 956.00 1,160.97 1,398.70
80.0 Growth% 66% -9.6% 57.8% 21.4% 20.5%
60.0
Net Profit 410.00 493.00 647.00 832.12 1,020.24
40.0
Growth% 46.4% 20.2% 31.2% 28.6% 22.6%
20.0
EPS 11.82 14.21 18.65 23.98 29.40
0.0
‐20.0 P/E 34.87 29.00 22.10 17.18 14.01
NIM% 3.32% 2.40% 3.60% 3.59% 3.41%
ROE 23.90% 22.30% 24.50% 24.30% 24.20%
Gruh Finance Ltd close
Gruh Finance Ltd.close SENSEX GNPA% 1 12
1.12 0 94
0.94 1 10
1.10 1 12
1.12 1 12
1.12
NNPA% 0 0 0 0 0
Analyst: Abhisek Sasmal BV 54.97 63.66 76.25 96.64 121.63
Email: asasmal@microsec.in P/BV 7.49 6.47 5.40 4.26 3.39
Ph No: 033-3051-2100 Source: Company, Microsec Research

23rd October’ 2010 Microsec Research

 Quarterly Analysis

INR Mn Q2'11 Q2'10 YoY% Q1'11 QoQ%

Interest earned 776.4 777.6 -0.15% 735.7 5.53%

Interest expense 474.7 463.1 2.50% 412.1 15.19%

NII 301.7 314.5 -4.07% 323.6 -6.77%

Other Income 56.1 6.8 725.00% 50.9 10.22%

Total Income 357.8 321.3 11.36% 374.5 -4.46%

Operational expense 81.9 64.3 27.37% 66.3 23.53%

Gross Profit (ppp) 275.9 257 7.35% 308.2 -10.48%

Provisions 12.9 83.4 -84.53% 99.7 -87.06%

PBT 263 173.6 51.50% 208.5 26.14%

Tax 98.8 67.4 46.59% 49.4 100.00%

PAT 164.2 106.2 54.61% 159.1 3.21%

EPS 4.75 3.07 54.61% 4.60 3.21%

Income Statement Spread Analysis FY09 FY10 FY11E FY12E

in Mn FY09 FY10 FY11E FY12E Avg yield on earning assets 12.67 11.44 12.10 12.15
Interest earned 2618.0 2758.0 3628.0 4601.0 avg cost of int bearing liabilities 10.00 7.90 8.50 8.70
Interest expense 2012.0 1802.0 2467.1 3202.3 Spread% 2.67 3.54 3.60 3.45
NII 606.0 956.0 1161.0 1398.7 NIM% 2.40% 3.60% 3.59% 3.41%
Growth% -9.6% 57.8% 21.4% 20.5%
Other Income 185.0 215.0 268.8 322.5 Growth% FY09 FY10 FY11E FY12E
Fee Income 139.0 110.0 210.6 294.8 Advances 17.9% 17.6% 23.7% 26.8%
Total Income 930.0 1281.0 1640.3 2016.0 NII -9.6% 57.8% 21.4% 20.5%
p
Operational expense
p 207.0 254.0 360.9 443.5 PAT 46.4% 20.2% 31.2% 28.6%
Gross Profit (PPP) 723.0 1027.0 1279.4 1572.5
Provisions 27.0 83.0 90.7 115.0 Operating Metrices FY09 FY10 FY11E FY12E
PBT 696.0 944.0 1188.7 1457.5 Cost to Income 22.3% 19.8% 22.0% 22.0%
Tax 203.0 297.0 356.6 437.2 ROE 22.3% 24.5% 24.8% 24.2%
Tax Rate% 29.2% 31.5% 30.0% 30.0% ROA 1.95% 2.43% 2.57% 2.49%
PAT 493.0 647.0 832.1 1020.2
EPS 14.2 18.6 24.0 29.4 Asset Quality FY09 FY10 FY11E FY12E
Gross NPA Ratio 0.94 1.10 1.12 1.12
Balance Sheet Net NPA Ratio 0 0 0 0
in Mn FY09 FY10 FY11E FY12E Coverage Ratio 100% 100% 100% 100%
Liabilities Gross NPA 197 271 338.6 429.4
Equity Capital 347.0 347.0 347.0 347.0 Net NPA 0 0 0 0
Reserve & Surplus 1862.0 2299.0 3006.3 3873.5
Networth 2209.0 2646.0 3353.3 4220.5 CRAR Ratio FY09 FY10 FY11E FY12E
Total Debt 23085.0 23937.0 29024.2 36807.9 Tier1 Ratio 14.57 15.57 15.6 15.7
Total 25294.0 26583.0 32377.5 41028.4 Tier2 Ratio 1.63 1.03 1.40 1.30
CAR% 16.2 16.6 17 17
Assets
Fixed Asset 91.0 95.0 101.8 111.9
Investments 128.0 327.0 314.4 398.8 Valuation Ratios FY09 FY10 FY11E FY12E
Housing loans 20765.0 24442.0 30233.5 38341.6 PE 29.00 22.10 17.18 14.01
Net Current Assets 4310.0 1719.0 1727.8 2176.2 P/PPP 0.57 0.40 0.32 0.26
Total 25294.0 26583.0 32377.5 41028.5 P/BV 6.47 5.40 4.26 3.39

2 Source: Company, Microsec Research

23rd October’ 2010 Microsec Research

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23rd October’ 2010 Microsec Research