GIC Housing Finance: Recommendation Review

We had recommended GIC Housing Finance in DSIJ Vol. 27, Issue No. 4 (dated January 30–February 12, 2012), when the scrip was trading at Rs 84. Our recommendation was backed by factors like good growth prospects for the housing finance space from the Tier II and Tier III cities, the government’s thrust on affordable housing, GIC being a well-capitalised company with a CAR of 15.24 per cent (which is above the stipulated 12 per cent mark) and its consistent high dividend payment history.

At its current levels, we are of the opinion that one should hold the counter. The housing space in Tier II and Tier III cities will certainly provide a boost to the company in the coming years, which will lead to higher revenue growth in FY13. Moreover, the government has provided various sops in this year’s budget, such as bringing down the withholding tax on ECBs for affordable housing from 20 per cent to five per cent for three years. It has also extended the scheme of interest subvention of one per cent on housing loans up to Rs 15 lakh, where the cost of the house does not exceed Rs 25 lakh for another year. This will boost the housing sector in the Tier III cities and rural areas. All this augurs well, and will push GICHL’s growth further.

The latest move by the RBI to cut the repo rate by 50 basis points to eight per cent will be a further advantage for GIC, which can pass on the benefits of a reduced interest rate regime to consumers by reducing the housing loan interest rates. We expect the company to put in a better performance going forward driven by a higher demand for home loans, now that the interest rates are slated to go down. We recommend that investors hold on to the counter for now.