Gruh has developed an excellent credit evaluation system which has proved to be very fruitful; it has its gross NPAs of 0.27 per cent and net NPA was nil in FY14 end which is best in the sector. Gruh's business from Gujarat and Maharashtra account for more than 75 per cent, with Madhya Pradesh, Karnataka, Rajasthan, Tamil Nadu and Chhattisgarh being the other regions where it has a strong presence.
Case for investment
- Gruh's loan disbursement is generally small and effective interest rates are lesser due to tax benefits of up to ₹2.5 lakh per annum.
- Long track record of performance and operations in niche rural and semi-urban centres throws up immense opportunities.
Gruh is sitting on a huge untapped opportunity; home loan penetration is around 7 per cent in India, is by far the lowest among the developing countries. Given the changing demography and rising income levels in rural India, the potential is immense for this housing finance company in the markets where it operates.
Gruh has a competitive advantage compared to competition, because of low interest rate sensitivity and a small loan ticket size. At an average ₹8 lakh loan ticket size, the company does face the challenge of escalating cost of servicing the loan. Yet, Gruh has managed to keep its net interest margin at 4.5 per cent, which is one of the highest in the industry.
A matter of concern is the growing competition from the local co-operative and public sector banks. Currently Gruh is quoting at price to book of 11.19, which is over priced and expensive. There is no doubt that Gruh is a long term investment, but it will be wise to buy this stock at a lower valuation. For the time, keep it on your watch list.