CD Equisearch is bullish on GIC Housing Finance has recommended buy rating on the stock with a target price of Rs 349 in its research report dated March 30, 2019.
CD Equisearch's research report on GIC Housing Finance
Recent reduction in GST rates on both under construction projects (from 12% to 5%) and under-construction affordable housing projects (from 8% to 1%) is expected to give a leg up to the affordable housing segment. Any incremental demand from the GST rate cut would be positive for HFCs, especially in case of the affordable housing segment where the loan books have increased by 2.6x since FY15 (Source: Indian Ratings). In order to address HFC’s liquidity crisis, NHB (National Housing Bank) has proposed to increase CAR (capital adequacy ratio) for HFCs to 15% (the current ratio stands at 12%), in a phased manner by FY22, which will be increased by 1% over the next three years. The housing finance regulator has also reduced the borrowing limit of HFCs from 16 times of net owned funds to 12 times by March 2022.
Outlook
GICHFL’s puny business size and dominance in western India cannot be overlooked. Weakened asset quality (GNPA and NNPA of 4.7% and 2.5% respectively in 9MFY19 compared to 2.3%and 0.2% in FY18) demands scrutiny. Weighing odds, we recommend buying the stock with target price of Rs 349 (previous target Rs 529) based on 1.5x FY20e BV for a period of 9-12 months; earnings expected to grow at CAGR 5.2% during FY18-20 period.
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