Good Dividend Paymaster - GIC Housing Finance

When the stock market is not giving clear cut signal in terms of its movement, it’s safe to move into a counter that offers good dividend yield and at the same time offer reasonable scope for capital appreciations. GIC Housing Finance (GICHFL) is one such company which has maintained its last year dividend of Rs 4 for this year too, giving a dividend yield of 4.54 based on the current share price of Rs 85. On the capital appreciation front, we are expecting near about 25 per cent gain in the next 12 months. We advise our readers to go for the same with a price target of Rs 110.

As the name suggests, the company is into housing finance business, and it is promoted by some of the leading public sector insurance and financial institutions such as GIC, New India Insurance, United India Insurance, IFCI and so on. GICHFL is doing very well on the financial front as it is among the few companies which have reported better sales and net profit numbers for the quarter ended March 2009 both YoY and QoQ. For the March 2009 quarter, the total income rose to Rs 82.19 crore against March 2008 quarter’s Rs 76 crore. The profit for the same period increased to Rs 17.09 crore against previous quarter’s Rs 12.31 crore. The interesting fact is that the company could report growth in FY2009 when many other companies found it difficult to do the same. For the full year, it sanctioned Rs 620 crore and disbursed Rs 601 crore. Both the figures were lower than FY2008 as business conditions were tough in the last one year. But despite that the company could report better financial numbers with total income of Rs 312.49 crore (Rs 274.80 crore) and net profit of Rs 57.14 crore (Rs 56.40 crore). With March 2009 quarterly numbers showing robust growth, we feel that the company should do reasonably well in the current financial year. The company reported EPS of Rs 10.59 for FY2009, and based on the current market price of Rs 85 the P/E works out to 8.39 times. Its peers LIC Housing Finance is quoting at P/E of 9 while Gruh Housing Finance is quoting P/E of 12 times.

As for the future of the company, we feel that housing finance as a sector would do well as the new government wants to put a lot of thrust on housing. Also, there is strong possibility that the forthcoming budget would offer good sops to the industry. Besides, GICHFL is backed by the government owned companies, which means better governance. What is also interesting is that the company had stake in the LIC Mutual Fund AMC and LIC Trustee and same has been sold in June 2009 for Rs 89 crore. Our estimate is that profit from the same would be more than Rs 80 crore, which would get reflected in the current financial year numbers. Since the company is maintaining good dividend payout ratio, we are not ruling out higher special dividend in the current year. That is another sweetener one can expect from the company. We recommend buy on the counter at the current level.