Huge untapped, under-penetrated housing market presents large growth opportunities to providers of housing finance.

Default rates of Indian mortgages have been at very low levels. This is owing to the fact that most mortgage loan borrowers are ‘first time’ borrowers who borrow money for their basic dwelling units. Low default rates drew competition from banks. Banks also have the advantage of low-cost deposits.

Gruh Finance is a 61% subsidiary of Housing Development Finance Corporation (HDFC) the largest Housing Finance Companies operating in India.

With an EPS of Rs 14.51 the stock trades at a PE of 8 against a PE of 20 that parent HDFC fetches on the market.

Gruh Finance also quotes cum-dividend Rs 4.80 per share, working into a dividend yield of 4 per cent.

Institutional Investors own close to 15 per cent of the Equity.

Good business prospects

Our long-term positive outlook on India's mortgage market evolves from the basic economic concept of demand and supply. Supply in the context of housing is far lower than demand, and this gap provides a huge opportunity of growth for providers of housing finance.

India's housing requirements, as indicated by statistics provided by National Building Organisation (NBO), Ministry of Housing & Urban Poverty Alleviation, Government of India, indicate a shortage of around 25m houses by end-2007 for Urban India. 'Housing shortage' has been defined as the excess of households over the available housing stock of acceptable standard.

To estimate the housing shortage, the data relating to the below is used:

The total number of households, total number of 'pucca' (permanent) and 'semi-pucca' houses occupied, the number of married couples who do not have an independent room to live in, dilapidated houses as percentage of total pucca and semi-pucca houses.

'Urban' has been defined as a human settlement having a minimum population of 5,000, with 75% of the male working population engaged in non-agricultural activities and a population density of at least 400 persons per sq km.

'Pucca' means permanent, and in terms of housing, pucca houses are those in which both walls and roofs are made of pucca materials like brick and mortar and not of bamboo or mud.

According to NBO, at the end of 2007, the total stock of pucca plus semi-pucca houses totalled 57m units.

Low penetration of housing loans in India

The huge potential for mortgage financers in India can also be seen from the low penetration of mortgage loans in the country. Mortgages, as a percentage of the GDP in India, are at a low level of 6%. This is trivial when compared with many other nations, both developing and developed, in the region and the world.