India has embarked on a path of steady growth owing to improved performance on various macroeconomic parameters and various reform measures announced by the government. A stable macroeconomic environment and falling commodity prices are some of the factors that have helped the country achieve strong economic growth estimates. The country is expected to register a GDP growth of 7.6%, as compared to 7.2% in the previous year, registering the highest percentage increase in the last five years. Meanwhile, the government has launched an ambitious housing programme—Housing For All by 2022—and is offering interest subsidy on housing loans and capital subsidy to meet the cost of construction. Moreover, the infrastructure status accorded to affordable housing will go a long way in making affordable housing really affordable for common Indians. The government has also passed the Real Estate (Regulation & Development) Bill, 2016, which is expected to ease the home buying process and bring transparency and accountability in this sector. The Union Cabinet has also approved an upgraded rural housing scheme to build one crore pucca houses over the next three years. To support the government’s programme for housing, the National Housing Bank (NHB) has reduced the risk weightage on smaller loans to promote affordable housing.
Not many people and even investors know about GRUH Finance Ltd. It is a subsidiary of blue chip HDFC Ltd and jointly promoted by HDFC and AKFED. Gruh was established in 1986 and commenced business two years later from Ahmedabad in Gujarat. The company’s main business is to provide loans for purchase and construction of residential houses. GRUH’s major focus has been to provide home loans to individuals and families for purchase, construction and extension of their homes. The company also provides loans for repair and renovations of houses and to families in the self employed category, where formal income proofs are not easily available and the repayment capacity of such families are appraised, based on their cash flows. Middle income groups with annual income above Rs 6 lakh and up to Rs 18 lakh per year are eligible for interest subsidy on housing loans under the new scheme. With an average ticket size of Rs 10 lakh, almost the entire base of Gruh Finance will be a beneficiary of this interest subvention scheme. The company’s Q4 FY17 net profit increased by 25.8% at Rs 110.4 crore, against Rs 87.8 crore for the same quarter, last fiscal, while the net interest income was up 22.1% at Rs 185.4 crore versus Rs 251.8 crore. It posted nil NPA for the quarter. With PE and EPS expected at 41 times and Rs 9.55 respectively for FY 18, the company is expected to grow at a CAGR of 16% over the next few years. With the stock market staring at multiple headwinds and high valuations, investors can accumulate high quality names like Gruh Finance at the current market price of Rs 390 for the long term for steady gains.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.