MOSL: GRUH FINANCE | Annual Report Update (Neutral)-Good traction in CLSS-Volume-led disbursement growth

GRUH Finance | Annual Report Update: Good traction in CLSS; Volume-led disbursement growth; Tweak in liability strategy helped sustain margins in FY18

(GRHF IN, Mkt Cap USD3.3b, CMP INR303, TP INR300, 1% Downside, Neutral)

• FY18 was a mixed year for Gruh Finance (GRHF). While disbursement growth rebounded well from demonetization-hit lows in FY17, the company experienced higher repayment levels, keeping loan growth stable at 18% YoY.
• Disbursement growth of 27% YoY was driven by both volume as well as value. Volume growth was an encouraging 18%YoY in FY18. In value terms, the share of loans with ticket size exceeding INR1m increased from 28% in FY17 to 31%.
• LTVs continue to inch up – 12% of properties were financed at 80% + LTV in FY18 compared to 9% in FY17 and 4% in FY16. Additionally, the dependence on ‘GRUH Referral Associates’ (GRAs) is increasing – they sourced 71% of total disbursements in FY18 v/s 68% in FY17 and 61% in FY15.
• GRHF managed its liabilities smartly to reduce cost of funds. It repaid high-cost NHB loans and increased its share of NCD and bank borrowings. In addition, it increased the share of short-term borrowings sharply from 16% in FY16 to 53% in FY18.
• While we are bullish on GRHF’s long-term prospects, we remain concerned on the slowdown in loan growth over the past 2-3 years coupled with the likely negative impact of rising G-Sec yields on margins. Maintain Neutral with an unchanged TP of INR300 (12x FY20E BV).