In our previous analysis for HFC sector we had looked at the Q3 FY17 results (Click here) for PNB Housing Finance, Canfin, Repco and Gruh. In a recent post we also looked at the results for PNB Housing Finance for Q1 FY18 (Click Here). Let us now continue with the analysis of  Housing Finance Companies to see how they fared in Q1 FY18.

Financial Analysis

The table below compares the numbers for Gruh and Repco Home finance.

Gruh

Repco
Growth (%) Q1 FY18 (Crores) Q1 FY17 (Crores) Growth (%) Q1 FY18 (Crores) Q1 FY17 (Crores)
Revenue 14.95% 398.12 346.34 8% 265.8 246.9
PBT 20.94% 108.32 89.56 17% 69.2 59.2
PAT 20% 72.26 60.18 14% 45.2 39.5
PAT Margin 18.15% 17.37% 17% 16%

 

The table below compares the numbers between CanFin Homes and PNB Housing Finance.

Canfin

PNB Housing
Growth (%) Q1 FY18 (Crores) Q1 FY17 (Crores) Growth (%) Q1 FY18 (Crores) Q1 FY17 (Crores)
Revenue 19.12% 368.82 309.62 38% 1192 863
PBT 41.47% 111.18 78.53 92% 283 147
PAT 43.21% 71.22 49.73 93% 185 96
PAT Margin 19.31% 16.06% 15.5% 11.12%
  • Revenue Growth: PNB Housing had the highest revenue growth at 38% followed by Canfin at second position with 19.12%. Gruh came third with revenue growth of about 15%. Repco was fourth with 8% revenue growth.
  • PBT Growth: Similar pattern can be seen with respect to PBT where PNB shows a phenomenal growth of 92% in PBT followed by Canfin with 41%. Gruh was third with about 21% followed by Repco at 17%.
  • PAT Growth: PAT follows a similar pattern with PNB first followed by Canfin, Gruh and Repco in that order.
  • PAT Margins: PAT Margins is a different story. Canfin has the highest PAT margin followed by Gruh with 18.15%. Repco was third with 17% and PNB had the least PAT margin among the four with 15.5%.

Overall, numbers wise, PNB Housing was way ahead of the other three in Q1 FY18. Canfin, with its very good numbers was second. Gruh with its carefully curated numbers came in third and Repco seemed to have had a very slow quarter and came in fourth. I am particularly surprised with the way Gruh deliberately manages its growth rate. The PAT has been growing at 20% for the past many-many quarters. In a quest to maintain low GNPA and NNPA numbers, Gruh seems to be very cautious in choosing its clientele. At the other end is PNB which is galloping like a stallion. Canfin is in the middle with prudent growth rate.

Expenses

The table below compares the numbers for Gruh and Repco Home finance. Revenue numbers are shown for ease of comparison

Gruh

Repco
Growth (%) Q1 FY18 (Crores) Q1 FY17 (Crores) Growth (%) Q1 FY18 (Crores) Q1 FY17 (Crores)
Finance Cost 5.51% 236.45 224.10 5.1% 162.8 154.9
Employee Expense 24.02% 12.08 9.74 14% 11.2 9.8
Other Expense 31.36% 12.69 9.66 20% 5.1 4.3
Provisions and Writeoff 122.64% 27.92 12.54 -6.17% 16.7 17.8
(Revenue) 14.95% 398.12 346.64 8% 265.8 246.9

The table below compares the numbers between CanFin Homes and PNB Housing Finance.

Canfin

PNB Housing
Growth (%) Q1 FY18 (Crores) Q1 FY17 (Crores) Growth (%) Q1 FY18 (Crores) Q1 FY17 (Crores)
Finance Cost 12.47% 233.29 207.41 24% 753 608
Employee Expense 10.2% 10.32 9.36 31% 29 22
Other Expense -1.5% 13.36 13.57 40% 74 53
Provisions and Writeoff 0% 0 0 72% 48 28
(Revenue) 19.12% 368.82 309.62 38% 1192 863
  • Finance Cost: Finance costs generally mirror the revenue growth rate. Since PNB hand a higher revenue growth, its finance cost growth was the highest at 24% followed by Canfin at about 12.5%. Gruh and Repco had similar Finance costs around 5% thereabouts.
  • Employee Expense: With respect to employee expense Canfin had the best numbers at 10.2% . Repco came second with employee expense at 14%. Gruh had the third best numbers at 24%. PNB Housing had the highest employee expense growth at 31%. These percentage numbers hide one important factor which is the contribution of this expense to the revenue. Let us look at a new metric “contribution of employee expense for every hundred rupees of revenue earned”. The numbers were quite surprising. In fact they are exactly opposite of what I was expecting. In-spite of the fact that Repco has an efficient branch operation model where 3-4 people run an entire branch and the employee salaries are less, it ended up with the highest value for this metric. PNB Housing on the other hand operates mostly in urban areas and in spite of this fact, the value of employee expense for every hundred rupees earned is the least for it. Canfin was the second most efficient company. Gruh came in third. This got me thinking on the reason for this unexpected result. I believe this is because of the fact that even though PNB Housing is urban-centric and pays more salary to its employees, it has far fewer branches and earns more revenue per employee compared to others. Hence PNB is more efficient compared to others.
Gruh Repco Canfin Homes PNB Housing
Employee expense/revenue 3.03 4.21 2.79 2.43
  • Other Expense: With respect to other expenses, Canfin came first with a decrease in other expense Y-o-Y. Repco was second with 20% growth in other expense. Gruh was third. PNB came fourth with the other expense growing at 40%.
  • Provisioning and writeoff: The numbers for provisioning and writeoff were interesting! Canfin had 0 provisioning and was the best among the four. Canfin was followed by Repco with a drop in provisioning by about 6%. PNB housing was third with growth in provisioning by 72%. In case of PNB Housing, the company deliberately allowed 5 accounts to enter into NPA in order to initiate court cases to recover loans. This would have resulted in higher provisioning. What was surprising was the provisioning numbers for Gruh! Gruh, which is known for prudent lending, had a 122% increase in provisioning. I believe demonetization might have hit Gruh in Q1.

Overall the expense numbers are inline for all the companies. Provisioning in case of Gruh was a surprise to me.

NIM and Spreads

Gruh and Repco had almost the same NIM. As we saw in the previous analysis, the reason being that Repco concentrates on non-salaried people. Because these customers do not get loans from other banks/financial institutions, they are ready to pay more for the home loan. Leading to larger NIMs. On the other hand Gruh predominantly lends to rural salaried people. It has sizeable non-salaried customers as well. Due to the profile of the client base these two companies can demand higher interest from its customers leading to higher NIM. CanFin is third with a NIM of 3.65%. PNB came last with the NIM at 3.16%.

Gruh Repco Canfin Homes PNB Housing
NIM 4.38 4.3% 3.65% 3.16%
Spread 2.9% 2.14%

GNPA and NNPA

Repco has the highest GNPA and NNPA. This should ideally be due to the non-salaried client base of Repco who earn lumpy amounts and are infrequent in repaying the loans. Gruh had the second highest GNPA. PNB had the third highest GNPA. Canfin was the best with the least GNPA and NNPA.

Canfin deserves the credit and special mention because it has the lowest GNPA and almost the lowest NNPA as well. It shows that Canfin has very good due diligence process to choose the customers.

Gruh Repco Canfin Homes PNB Housing
GNPA 0.64% 3.97% 0.38% 0.43%
NNPA 0.16% 2.61% 0.17% 0.33%

Return om Equity (ROE)

Gruh has the highest ROE (For FY17). Canfin has the second best ROE numbers. Repco came in third with an ROE of 18.2%. PNB had the least ROE. In case of PNB Housing the ROE has gone down from a high of 17.12% in FY16 to 14.92 in FY17 due to IPO. I guess it will take some time for PNB to recover and generate better ROE numbers.

Gruh (FY17) Repco Canfin Homes PNB Housing
ROE 26.4 18.2% 25.54% 13.01%

Summary

  • In terms of financial numbers PNB Housing beat hands down the other three companies. Canfin had the second best numbers. Gruh has shown consistent performance and came in third. Repco was fourth. I was disappointed with Repco’s results. Repco is a company which had consistent growth of 26% but is seeing lower growth for couple of quarters now.
  • When it comes to NIMs, Repco and Gruh had the best numbers. Concentrating on rural customers and the non-salaried customers provides the cushion to charge the highest rates. PNB and Canfin being urban centric have to compete with many lenders and hence have lower NIM.
  • With respect to GNPA Canfin had the best numbers followed by PNB, Gruh and Repco. An interesting aspect of GNPA is the fact that PNB deliberately allowed few accounts to turn NPA. If the company had persuaded these clients to pay up, then the GNPA would have been around 0.33 and PNB would have seen the least GNPA numbers.

References

[1] Gruh Finance Q1 FY18 results, Investor presentation

[2] Repco Home Finance Q1 FY18 results, Investor presentation

[3] Canfin Q1 FY18 results, Investor presentation

[4] PNB Housing Q1 FY18 results, Investor presentation

Disclaimer

I am not a SEBI registered research analyst. The information provided above is my subjective view based on what I have read on different websites, annual reports, and quarterly reports of various companies which I assume to be accurate. The above information should not be treated as an offer/advise to purchase a specific stock/investment instrument. Since these are my subjective opinions, I could be wrong in my understanding or presentation of information. I do not claim that the above information is complete or can be relied upon as such. I cannot be held responsible for any loss or damage caused due to any inadvertent error in the above information. I will not be liable for investment decisions made by readers of this article based on the above information. I am not an investment advisor. I may or may not have position in the above company. Please consult your investment advisor for all your investment needs.