Monday, July 13, 2015

GIC Housing's Results on July 17th, Shines on Dividend Payout

GIC Housing Finance has scheduled its board meeting on July 17th, for the purpose of approving and announcing the latest quarterly results. Meanwhile, the small-cap housing finance company, promoted by public sector general insurance majors, continues to be in focus due to its long track-record and growing level of dividend payouts every year.

GIC is focused on a lucrative segment of home loans comprising of first-time buyers with average ticket-size of Rs. 15 lakhs. One of its key geographical focus areas include the high-growth market of Mumbai suburbs.

Despite turning ex-dividend on its latest annual payout recently, GIC Housing stock has not fallen significantly, as it has a long track-record in rising dividend payouts, and also because it's quarterly result is just days ahead on July 17th.

An investment of Rs. 2,50,000 in GIC Housing Finance, done 14 years back, would have returned Rs. 12.05 lakhs as just annual dividends itself. All these returns as tax-free. This year alone, GIC Housing is delivering a dividend of Rs. 1,96,850 or nearly Rs. 2 lakhs against that old Rs. 2.5 lakh investment.

Surprised? You should be, as this happens in a country and its stock market where even big and mighty stocks are known to stand still, or destroy wealth, or pay pebbles as dividend for years. But wait till you hear the full story.

The tax-free returns of Rs. 12,05,000 was just the dividend. What happened to your capital of Rs. 2.5 lakh? Well, it just went on and multiplied and multiplied and became Rs. 1.13 crore recently. Rising more than 45 times within 14 years. Again, this too is tax-free as it is capital gains from equity.

In fact, the real returns from this Joint Sector Housing Finance Company (HFC) would be much bigger for its long-term investors if they had subscribed to its two Rights Issues during this 14-year period, that came at hefty discounts.

You may not hear GIC as topping the charts in any of the headline metrics like loan-book growth or NIM growth or profit growth. GIC has always been a slow and steady kind of performer, expanding and compounding its business slowly but surely. But sometimes that is only what is needed.

With too much speed comes the associated pitfalls, like too much equity dilution that would have hurt its shareholders whenever the housing finance market went through sluggish phases. Instead, GIC has survived for this great age, when housing finance is all set to enter its greatest and fastest growth phase ever, now.

Under its MD & CEO Warendra Sinha's leadership, GIC too is getting ready for this phase with accelerated branch expansions and more innovative products, backed by a borrowing target of Rs. 400 crore for this ongoing fiscal.

What sets apart GIC from its comparable peers by size is its generous dividend policy that kept on increasing from 10% of its Face Value, 14 years back, to 13% to 15% to 30% to 40% to 45% to 50% to 55% to 60%, over the years.

Not too long back, GIC had paid one-third or 33% of its net profit as dividends, in line with what the best companies in the world pay out as dividends, especially when they keep that fine balance between dividends and re-investment for growth.

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