MOSL: GRUH FINANCE (Neutral)-Loan growth slows down to multi-quarter low

Gruh Finance: Loan growth slows down to multi-quarter low; positive impact of Ind-AS on profitability

(GRHF IN, Mkt Cap USD3.4b, CMP INR324, TP INR300, 7% Downside, Neutral)

• GRHF’s loan growth slowed down to 16% YoY (v/s 19% a year ago and 24% two years ago). Loan book stands at INR159b. This was due to 2% YoY growth in disbursements and a 150bp increase in repayment rate to 24.1%. Note that the repayment rate was 400bp+ higher on a YoY basis in FY18.
• Importantly, core home loan growth slowed down to 17% YoY in 1QFY19 – the lowest in past several quarters. Overall loan mix was largely stable. GRHF has not been investing in branch network expansion over past 2-3 quarters – this is probably because some existing branches are yet to scale up.
• NII grew 13% YoY to INR1.89b, driven by a 20bp reduction in spreads to 4.1%. Note that cost of funds is stable QoQ at 7.4% and has bottomed out, in our view. Yields are down 50bp YoY.
• Opex grew 11% YoY, resulting in 13% YoY PPoP growth. Credit costs declined 67% YoY to INR38m. In our view, this is because of a high base due to a sharp spike in the GNPL ratio in 1QFY18 (from 31bp to 64bp). The company has not disclosed its GNPL/NNPL ratio as of 1QFY19.
• As required under Ind-AS, total provisions carried on the balance sheet equal INR990m in 1QFY19 v/s INR1.4b in 4QFY18. Current provisions on the balance sheet translate to an ECL of 62bp.