Gruh Finance Profit Grows 20% In First Quarter Even As Competition Heats Up

Gruh Finance Ltd. reported a net profit of Rs 72 crore in the quarter ended June, a growth of 20 percent year on year, supported by a strong increase in loan disbursal.

“Loan disbursement in the first quarter was quite robust in the first quarter with a growth of 27 percent,” said Sudhin Choksey, the mortgage lender’s managing director in a telephonic interaction with BloombergQuint.

The higher disbursements did not reflect in Gruh Finance’s asset book, on account of an increase in pre-payment, and what Choksey called “poaching of loans by public sector banks”.

Most banks have increased their focus on retail lending on account of lower non-performing assets in this segment and the slowdown in corporate lending. As a result, companies like Gruh Finance are under increasing pressure to offer lower rates to customers leading to a tightening of interest rate spreads.

Gruh Finance’s loan book grew by 18.5 percent year-on-year to Rs 13,695 crore, a few ticks lower than the 20-25 percent rate that it aims at on a regular basis. One of the primary reasons, Choksey said, was because pre-payment has increased to 13 percent from 11 percent earlier. This, he said, was slightly elevated from Gruh Finance’s perspective.

Going forward, the non-banking finance company will continue to aim at a loan growth of 20-25 percent, but Choksey said pre-payment pressure and competition from banks could rise, especially because interest rates are likely to trend lower.

The government’s affordable housing will certainly give a fillip to mortgage lending, but the benefits are likely to unfold at a gradual pace, he said. Brokerage Antique Broking said in a note that the company is well poised to benefit from any upswing in the affordable housing segment given its experience in that space and strong presence in Western India. “Valuations at 40 times FY19 earnings capture the potential upside in growth,” Digant Haria of Antique Broking wrote in the note.

Given its strong presence in Western India and solid experience in affordable housing space, GRUH is well poised to benefit from any upswing in affordable housing space. However,

On the asset quality front, there are no worries, according to Choksey. However, the company generally sees more pressure on collections in the third and fourth quarter, and will therefore have to re-evaluate in September, he said.

In the first quarter, gross non-performing assets (NPA) increased to 0.64 percent from 0.56 percent on a sequential basis. Net NPAs declined to 0.16 percent from 0.27 percent, on account of a sharp increase in provisions.

Provisions and writeoffs stood at Rs 27.9 crore during the quarter, compared with Rs 1.4 crore in the preceding quart