Housing finance sector has select few companies that are listed on the stock market. But off late there has been growth issues in some of the marquee names. The Q3 results for many of these companies already out, let us try to see how these housing finance companies fared. I will concentrate on four companies: Gruh Finance, Repco Home Finance, Canfin Homes, PNB Housing Finance.

There is a reason why I chose these companies. Gruh finance was chosen as it is the quintessential stock market favorite. Repco Home finance was chosen for its relentless pursuit of non-salaried segment. Canfin because of the eye popping growth over the past couple of years and PNB housing finance as it is the new kid in town.

Before we go further, I strongly urge you to read the below link if you have not read it before:

Financial Analysis

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

Gruh Repco
Growth (%) Q3 FY17 (Crores) Q3 FY16 (Crores) Growth (%) Q3 FY17 (Crores) Q3 FY16 (Crores)
Revenue 17.76% 381.02 323.55 17.24% 264.24 225.38
PBT 18.12% 96.65 81.82 20.98% 71.44 59.05
PAT 19.16% 64.04 53.74 20.37% 46.44 38.58
PAT Margin 16.80% 16.60% 17.57% 17.11%

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

Canfin PNB Housing
Growth (%) Q3 FY17 (Crores) Q3 FY16 (Crores) Growth (%) Q3 FY17 (Crores) Q3 FY16 (Crores)
Revenue 23.97% 349.64 282.03 40.7% 998 709
PBT 38.66% 93.85 67.68 42.75% 207 145
PAT 41.33% 59.6 42.17 52.22% 137 90
PAT Margin 17.04% 14.95% 13.72% 12.69%
  • Revenue Growth: PNB Housing Finance had the maximum revenue growth of 40.7%. In second place was Canfin Homes with a revenue growth of 23.97%. Third place was taken by Gruh with a revenue growth of 17.76%. Repco came in close fourth with revenue growth of 17.24%
  • PBT Growth: PNB Housing Finance came first with PBT growth of 42.75%. In second place was again Canfin Homes with a PBT growth of 38.66%. Third place was taken by Repco with a PBT growth of 20.98%. Gruh came fourth with a PBT growth of 18.12%
  • PAT Growth: PNB housing again took the first place with a PAT growth of 52.22%! Second place was taken again by Canfin homes with a PAT growth of 41.33%. Repco came in a distant third with a PAT growth of 20.37% closely followed by Gruh in 4th place with a PAT growth of 19.16%.
  • PAT Margins: Repco came first with PAT margins of 17.57% for Q3 FY17. Taking the second palce again was Canfin Homes with a PAT margin of 17.04%. Gruh, with a PAT margin of 16.80%, came in third. PNB house came fourth with PAT margin of 13.72%.

Overall, numbers wise, PNB housing came first, followed by Canfin Homes. Repco and Gruh came as distant third and fourth.

Expenses

The table below compares the expenses for Gruh and Repco Home finance. Revenue numbers are shown in the last row for ease of comparison (i.e. expense vis-à-vis revenue)

Gruh Repco
Growth (%) Q3 FY17 (Crores) Q3 FY16 (Crores) Growth (%) Q3 FY17 (Crores) Q3 FY16 (Crores)
Finance Cost 12.93% 229.7 203.4 19.15% 168.17 141.14
Employee Expense 8.05% 11.40 10.55 9.2% 10.44 9.56
Other Expense -26.78% 9.84 13.44 -12.5% 5.14 5.88
(Revenue) 17.76% 381.02 323.55 17.24% 264.24 225.38

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

Canfin PNB Housing
Growth (%) Q3 FY17 (Crores) Q3 FY16 (Crores) Growth (%) Q3 FY17 (Crores) Q3 FY16 (Crores)
Finance Cost 20.73% 230.37 190.80 38.30% 673.08 486.65
Employee Expense 24.01% 10.43 8.41 23.60% 24.97 20.21
Other Expense -3.37 14.04 14.53 54.77% 57.22 36.97
(Revenue) 23.97% 349.64 282.03 40.7% 998 709
  • Finance Cost: PNB had the maximum finance cost growth at 38.3%. This was expected considering the revenue growth at 40.7%. CanFin homes came second with finance cost growth at 20.73%. Repco was third with 19.15%. This is in spite of the fact that revenue grew at a mere 17.24%. It clearly shows that Repco’s borrowing costs are higher. Gruh had the least finance cost growth at 12.93% on top of revenue growth at 17.76%. One thing that can be noted from the above tables, Finance cost is directly proportional to the revenue growth.
  • Employee Expense: Canfin Homes saw employee expense grow at 24.01% closely followed by PNB Housing Finance in second place with a growth of 23.60%. Repco came a distant third with 9.2% and Gruh came fourth with a growth of 8.05%. Again this was expected. Gruh and Repco are in Tier-2 and Tier-3 cities where the employee costs are less where as PNB housing and Canfin Homes operate in cities hence their employee expense as well as its growth are higher.
  • Other Expense: While Gruh, Repco and Canfin saw a decline in other expenses, PNB Housing finance saw a 54.77% growth in other expenses. This could be due to the fact that PNB housing opened 11 new branches in FY17 and many of them might have go opened in Q3. Also the company listed its shares in Q3 FY17. This would have incurred some cost. CanFin came in second with a decline of 3.37%. Repco came third with a decline of 12.5%. Gruh came fourth with a decline of 26.78%.

Overall the expense numbers seem to be in-line with expectations.

Per-Branch Analysis

One thing that kept coming back to me was the reason for the stupendous growth in revenue and profit for Canfin Homes. All the companies are in the business of lending. Housing finance lending is not some rocket science that needs specialized skill for one company (Canfin Homes) to run away with all the laurels when other companies like Repco and Gruh barely grew at 20%. After digging a little I found out the reason. The numbers (revenue, PAT etc.) are always reported at an aggregate level. So I decided to calculate the performance of the housing finance companies on a per-Branch level. We will look at the following number for these companies on a per-branch level.

  • Disbursement per-branch
  • Loan book growth per-branch
  • Revenue per branch

Canfin  Homes Per Branch Analysis:

Disbursements per branch

The table below shows that Canfin Homes has constantly increased its disbursements. But on closer look we notice that it has increased the number of branches as well. And when we look at disbursements per branch we notice that the numbers are flat for 9 month period for the past 3 years. Hence all the increase in disbursement seems to be purely because of increase in number of branches.

Also notice the co-relation between disbursement growth and branch growth. Initially number of branches grew by 20% but disbursement grew only by 10%. So new branches took their own time to start the disbursements. By the next year i.e. by FY17 the branches opened in previous year might have been in full swing so the branch growth was only 21%, however the disbursement saw a much better growth of 30%.

Canfin Homes FY15 (Crores) FY16 (Crores) FY17 (Crores)
Disbursement amount  (for 9 months) 2470 2724 3558
Disbursement Growth (%) 10.2% 30.6%
Number of Branches 117 140 170
Branch Growth (%) 19.6% 21.4%
Disbursement amount Per Branch (for 9 months) 21 19.45 21

Loan book growth per branch

Now let us look at loan book growth for Canfin. It shows a constant growth of close to 30% in spite of new branch additions. So the company could not add more customers in FY17 even though the branches increased. I think the reason for this could be demonetization. People might have shied away from taking new loans in Nov & Dec.

In essence there were new branch additions but there was no corresponding loan growth seen. However (from previous table we notice) there were higher disbursements as the loans might have been taken before demonetization.  Loan book growth per branch seems to have increased about 13% over the past two years but it hardly justifies the substantial profit growth.

Canfin Homes FY15 (Crores) FY16 (Crores) FY17 (Crores)
Loan book amount  (for 9 months) 7634 9895 12688
Loan Growth (%) 29.6% 28.22%
Number of Branches 117 140 170
Branch Growth (%) 19.6% 21.4%
Loan book amount Per Branch (for 9 months) 65.24 70.65 74.63

Revenue growth per branch

The revenue growth numbers further confirm the observation that the growth has come from branch additions rather than efficiencies from existing branches. Revenue per branch has hardly grown by 15% (cumulative) in the past two years.

Canfin Homes FY15 (Crores) FY16 (Crores) FY17 (Crores)
Revenue (for 9 months) 589.97 788.26 991.64
Revenue Growth (%) 33.61 25.80
Number of Branches 117 140 170
Branch Growth (%) 19.6% 21.4%
Revenue Per Branch (for 9 months) 5.04 5.63 5.83

Profits per branch

I wish I could get the profit per-branch numbers from the company (at a branch by branch level). It would have shown a clear picture. But nevertheless the below table summarizes the profit per branch. On a per-branch basis it has increased from 54 lakhs to 96 lakhs (for 9 month period) over the past two years. So the company seems to have almost doubled the profits per branch in two years. This contradicts with the above three tables. If the loan growth has been stagnant, disbursement per-branch has been stagnant and revenue per branch has been stagnant then how can profit per branch double? There are various ways to achieve that. For example the company might have managed to reduce its expenses by smartly managing the finance cost, employee cost, CAPEX cost, tax outgo etc.

For example, in the past one year the company increased its market borrowings from 40% to 48% (this would include the NCD, Commercial paper). These have lower interest outgo compared to bank term loans.

Canfin Homes FY15 (Crores) FY16 (Crores) FY17 (Crores)
Net Profits (for 9 months) 63.36 109.66 164.39
Net profit Growth (%) 73% 50%
Number of Branches 117 140 170
Branch Growth (%) 19.6% 21.4%
Net profit Per Branch (for 9 months) 54.15 78.32 96.7

Summary (Canfin Homes Per Branch Analysis)

From the above number, to my myopic eyes, it appears that Canfin has achieved the revenue, loan book and disbursement growth predominantly due to branch & satellite center expansion. Additionally the profit growth seems to have be achieved by smart management of its expenses (interest cost and borrowing profile).

 

PNB Housing Finance Per Branch Analysis

Now let us look at the per-branch numbers for PNB housing finance.

Disbursements per branch

In case of PNB housing finance, I notice that the outreach centers (similar to satellite centers of CanFin homes) may not be included in the calculations. Assuming only the main branches are taken into consideration for the numbers, I notice that the Disbursement per branch has increased over the years and may double over a four year timeframe ending in FY17.

PNB Housing Finance FY14 (Crores) FY15 (Crores) FY16 (Crores) FY 17 (9 Months) (Crores)
Number of Branches (Outreach centers Not included) 32 38 47 58
Disbursement amount Per Branch 172 248 308 251 (9 months)
Disbursement per branch growth 44% 24.19% -18.5%  (9 months)

Loan book growth per branch

Again with respect to loan book growth per branch I notice that that there is an increase every year. In the 9 months for FY17, the numbers seem to have crossed FY16 numbers. I am getting a little uncomfortable with these numbers. They seem too good. Again I have not considered the outreach centers for FY17 calculations.

PNB Housing Finance FY14 (Crores) FY15 (Crores) FY16 (Crores) FY17 (9 months) (Crores)
Number of Branches (Outreach centers Not included) 32 38 47 58
Loan book Per Branch 321 444 575 591  (9 months)
Loan book per branch growth 38.3% 29.5% 28%  (9 months)

Revenue growth per branch

Revenue per branch also has seen a decent growth over the past four years. In FY17, for 9 months ending Dec 16, the Revenue per branch has already reached full year number of FY15. I have not considered outreach centers in the calculations for FY17.

PNB Housing Finance FY14 (Crores) FY15 (Crores) FY16 (Crores) FY17 (9 months) (Crores)
Number of Branches (Outreach centers Not included) 32 38 47 58
Revenue Per Branch 34 46 56 46  (9 months)
Revenue per branch growth 35.3% 21.73% -17.8% (9 months)

Summary (PNB Housing Per Branch Analysis)

PNB housing seems to have increased disbursements, loan book and revenue per branch over the past four years. I am little hesitant in proclaiming this as a nice work by PNB team because I have not considered the 25 odd outreach centers in the calculations for FY17. I tried to find out the financial numbers of such centers for FY14, FY15 and FY16, but I could not find them. Hence, for the sake of uniformity, I removed them from calculation. Nevertheless, I must say that it is a very good performance at branch level by PNB housing.

 

Repco home finance per branch analysis

Disbursement growth per branch

Repco has seen a constant growth in disbursements over the years. It has grown its branches as well over the years. However FY17 seems to have paused the growth for the company both in terms of number of branches as well as disbursements per branch (for 9 months in FY17). The company was mentioning that demonetization may have led to lower offtake by customers as most of its customers are non-salaried.

Repco home Finance FY14 (Crores) FY15 (Crores) FY16 (Crores) FY 17 (9 Months) (Crores)
Number of Branches 122 142 150 153
Disbursements 1715 2181 2851 1977 (9 months)
Disbursement amount Per Branch 14.05 15.3 19 12.92  (9 months)
Disbursement amount Per Branch growth 8.89% 24.18% -32%  (9 months)

Loan book growth per branch

The loan book growth per branch has shown a very healthy rate for Repco. Over the past 3 years it has grown at 10%, 21%, 10.3%. Note that for FY17 we have considered only the 9 months. Hence by the end of FY17, the growth could be higher.

Repco home Finance FY14 (Crores) FY15 (Crores) FY16 (Crores) FY 17 (9 Months) (Crores)
Number of Branches 122 142 150 153
Loan book 4661 6013 7691 8656  (9 months)
Loan book Per Branch 38.20 42.34 51.27 56.57  (9 months)
Loan book per branch growth 10% 21% 10.3%  (9 months)

Revenue growth per branch

Revenue per branch has growth at a decent rate over the past few years. Fy17 numbers are again skewed as it is only for 9 months.

Repco home Finance FY14 (Crores) FY15 (Crores) FY16 (Crores) FY 17 (9 Months) (Crores)
Number of Branches 122 142 150 153
Revenue 534 692 880 770 (9 months)
Revenue Per Branch 4.3 4.8 5.8 5.03 (9 months)
Revenue per branch growth 11.6% 20.8% -13.2% (9 months)

Summary (Repco Home Finance per branch Analysis)

Repco seems to have shown a very consistent performance at per-branch level over the years.  FY17 (9 months) numbers have shown that the growth has come down for the company.

 

Gruh Finance

Disbursements per branch

The disbursement per branch has seen a healthy growth for Gruh finance.

Gruh Finance FY14 (Crores) FY15 (Crores) FY16 (Crores) FY 17 (9 Months) (Crores)
Number of Branches 146 164 179 183
Disbursements 2577 3121 3857 2870 (9 months)
Disbursement amount Per Branch 17.65 19.03 21.54 15.68 (9 months)
Disbursement amount Per Branch growth 7.81% 13.18% -27.2 (9 months)

Loan book growth per branch

Over the years, Gruh has been able to grow its loan book at a healthy rate. Even for the 9 month period, the company grew the loan book at a very good rate. So one can expect a decent number at the end of FY17.

Gruh Finance FY14 (Crores) FY15 (Crores) FY16 (Crores) FY 17 (9 Months) (Crores)
Number of Branches 146 164 179 183
Loan book 7020 8926 11115 12534
Loan book Per Branch 48.08 54.42 62.09 68.49
Loan book Per Branch growth 13.18% 14.09% 10.30%

NIM and Spreads

Now let us get back to the comparison of all the companies. Let us concentrate on the NIMs. Repco home finance has the maximum NIM followed by Gruh. The reason being that Repco home finance 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 from companies like Repco/Gruh. Leading to larger NIMs. Gruh predominantly lends to rural salaried. It has sizeable non-salaried customers as well. Hence the higher NIMs. CanFin is third with a NIM of 3.49%. Followed by PNB housing with a NIM of 2.82%. Since Canfin and PNB housing concentrates predominantly on salaried class their NIMs are lower (they don’t have the luxury to charge higher interest rates).

  Gruh Repco Canfin Homes PNB Housing
NIM 4.11 4.3% 3.49% 2.82%
Spread 3.0% 2.08%

GNPA and NNPA

Because Repco concentrates on non-salaried people its NPAs also tends to be higher. Moreover this quarter had the impact of demonetization. Management of Repco accepted that demonetization might have led to cash crunch leading to lower EMI payments. The second highest GNPA numbers are surprisingly for Gruh finance. PNB housing had the third highest GNPA numbers at 0.37%. This was in spite of availing the 60 day window due to demonetization. Canfin has the least GNPA numbers.

In case on NNPA, Gruh scored a perfect 10 with 0 NNPA. No wonder the market pays top dollar for Gruh finance (that, however, does not justify the market price). Repco topped the NNPA numbers followed by PNB housing and Canfin.

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 excellent due diligence process to choose the customers.

Gruh Repco Canfin Homes PNB Housing
GNPA 0.54 2.6% 0.24% 0.37%
NNPA 0% 1.5% 0.01% 0.27%

Summary

  • When it comes to financial performance, both PNB Housing and Canfin Homes have shown excellent revenue growth and PAT growth (more than 30%). Repco and Gruh have shown fairly OK performance for Q3 FY17. Between PNB and Canfin, PNB Housing has better numbers.
  • With respect to per-branch analysis, PNB Housing has shown excellent numbers even at per-branch level. This was followed by Repco with a very consistent per-branch performance. Gruh seemed to be in the 3rd place followed by Canfin homes. I was a little disappointed with the per-branch analysis for CanFin homes. CanFin story seemed more like a branch expansion story. I felt that if they stop expanding the branches their numbers might stagnate. I might be wrong here (and I hope I am wrong as the amount of shareholder wealth created over the past couple of years by Canfin is amazing!).
  • When it comes to NIMs, clearly Repco and Gruh take the cake. They lend in rural areas where there is lack of credit providers for housing loans and since they concentrate on non-salaried people, they can charge more. PNB and Canfin on the other hand are in urban areas and complete with the big banks. Hence their NIM would be less.
  • With respect to NPAs Gruh and Canfin take the honors. PNB came in third and Repco comes at the end. Repco is hit hard due its customer profile (non-salaried). So its GNPA numbers are always bad. NNPA would be a little better as it would receive lumpy EMI payments from its non-salaried customers.
  • It will be fun to compare the Q4 numbers for these companies as we will get a clear, full-year picture.

References

[1] Gruh Finance Q3 FY17 results, Investor presentation

[2] Repco Home Finance Q3 FY17 results, Investor presentation

[3] Canfin Q3 FY17 results, Investor presentation

[4] PNB Housing Q3 FY17 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.