Analysis of Financial Housing Companies-tauseef Padvekar.

A REPORT ON

“ANALYSIS OF FINANCIAL HOUSING COMPANIES”

SUBMITTED AS SUMMER INTERNSHIP PROJECT REPORT FOR THE AWARD OF

“MASTER OF MANAGEMENT STUDIES”

UNDER THE GUIDANCE OF

MR. KALPESH DODIA

RESEARCH DEPARTMENT

MAX NEW YORK LIFE INSURANCE

SUBMITTED BY

TAUSEEF PADVEKAR

MMS-MARKETING

2008-10

N.L.DALMIA INSTITUTE OF MANAGEMENT STUDIES AND RESEARCH

MIRA ROAD (E), MUMBAI-401104

N.L.Dalmia Institute Of Management Studies And Research 1

N.L.Dalmia Institute of Management Studies & Research

“Srishti” Sector-1, Mira Rd. (E) Mumbai-401104

CERTIFICATE

This is to certify that Mr. Tauseef Padvekar, Student of Master of Management studies (Marketing) of N.L.Dalmia Institute of Management Studies & Research has satisfactorily completed Summer Internship Project on Analysis of Financial Housing Companies under my supervision and guidance as partial fulfilment of requirement of MMS course, 2008-2010.

_________________________________________

Mr. Kalpesh Dodia(Project Guide)Max New York Life Ltd.


ACKNOWLEDGEMENT

Working on this Project with MAX NEW YORK LIFE INSURANCE has been a

wonderful experience. It was a great privilege working with the firm and getting a

firsthand knowledge of some of the functions performed by them.

I am very grateful to Prof. P.L.Arya, Director, N.L.Dalmia Institute of Management

Studies and Research for giving me this opportunity.

I acknowledge with special thanks the help of my project guide Mr. KALPESH

DODIA for his valuable guidance and assisting me in completion of the project. I also

thank him for sharing lots of his knowledge and ideas, which were useful for my

project.

I am thankful to all the officials of MAX NEW YORK LIFE INSURANCE, who were

forthcoming and enthusiastic to answer all my queries. I would like to take this

opportunity to thank them for their kind cooperation and patience.

TAUSEEF PADVEKAR

MMS(MARKETING) 2008-10

N.L.Dalmia Institute of Management Studies and Research


EXECUTIVE SUMMARY

This project consists of two parts; the first part provides information about Life

Insurance, the Life Insurance industry and Max Newyork Life Insurance Ltd one

of the upcoming and major private players in the life insurance sector. It describes

what Life insurance is, how the Life Insurance industry has evolved over the years in

India as well as globally and at what stage the industry is, it also provides information

about Max Newyork Life Insurance Ltd; its history, Values, mission, corporate

structure, management team and the products offered by the company. The next half

gives an in-depth analysis and understanding of the current status of the Financial

Housing Sector in the country with a focus on the performances of the three major

players HDFC, LIC Housing Finance and Dewan Housing Finance.

The real estate industry in India has grown on the back of fast developing housing

segment. The housing sector is the most dynamic segment of the real estate industry

compared to commercial and other property development segments.

The Indian housing market is facing an acute demand-supply mismatch. It is also

estimated that most of this shortage pertains to the economically weaker sections and

low-income groups. Home loans to Gross Domestic product (GDP) Ratio in India is

7.25% as against 80% in developed countries like United States and United Kingdom,

according to Assocham. This indicates a huge growth potential for the housing sector

and in turn presents a fantastic growth opportunity for the financial housing

companies.

On the other hand, the subprime crisis in the US has shown how hazardous the

mortgage market can be if not handled properly. The Indian housing finance sector

has been insulated from this subprime crisis owing to various factors like availability

of plain vanilla financial products in the market, limited exposure of Indian financial

system to highly leveraged structured products, timely measures by the authorities to

control asset bubbles etc.

However, the industry has become over crowded, with players of all sizes. The entry

of banks into the sector has further intensified competition. Increasing competition

has forced various small sized housing finance companies, which faces squeeze on


margins to reconsider their strategy, thereby providing an opportunity for inorganic

growth for other developing housing finance companies.

This report gives a brief idea about the growth prospects of Indian Financial Housing

sector along with valuation, relative comparison and investment strategy of three

major housing finance companies- HDFC, LIC Housing Finance and Dewan Housing

Finance.


INDEX

Sr.

NoTOPIC

Page

No

1 Objective 7

2 Life Insurance

Introduction 8

Types Of Life Insurances 11

Benefits Of Life Insurance 13

History Of Life Insurance 15

Companies in India 18

3 Max New York Life Insurance Ltd

Overview 19

Management 21

Organisation flow chart 23

Products 24

4 World Economy Outlook 31

5Analysis of Financial housing

Companies

Indian Housing Sector 33

Current Scenario 35

6 Company Valuation

LIC Housing Finance Ltd 40

Housing Development Finance Corporation Ltd 45

Dewan Housing Finance Corporation Ltd 50

7 Comparative Analysis 55

8 Conclusion 57


9 Bibliography 58

OBJECTIVE

1) To get a brief overview of the Insurance Industry

2) Analysing the Financial Housing Companies

LIC Housing Finance Ltd

Housing Development Finance Corporation Ltd

Dewan Housing Finance Corporation Ltd.


LIFE INSURANCE

AN INTRODUCTION

Life insurance or life assurance is a contract between the policy owner and the

insurer, where the insurer agrees to pay a sum of money upon the occurrence of the

insured individual's or individuals' death or other event, such as terminal illness or

critical illness. In return, the policy owner agrees to pay a stipulated amount called a

premium at regular intervals or in lump sums.

As with most insurance policies, life insurance is a contract between the insurer and

the policy owner whereby a benefit is paid to the designated beneficiaries if an

insured event occurs which is covered by the policy.

The value for the policyholder is derived, not from an actual claim event, rather it is

the value derived from the 'peace of mind' experienced by the policyholder, due to the

negating of adverse financial consequences caused by the death of the Life Assured.

To be a life policy the insured event must be based upon the lives of the people

named in the policy.

Insured events that may be covered include a serious illness.

Life policies are legal contracts and the terms of the contract describe the limitations

of the insured events. Specific exclusions are often written into the contract to limit

the liability of the insurer; for example claims relating to suicide, fraud, war, riot and

civil commotion.


http://en.wikipedia.org/wiki/Illness

http://en.wikipedia.org/wiki/Beneficiary

http://en.wikipedia.org/wiki/Insurance

http://en.wikipedia.org/wiki/Death

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Life-based contracts tend to fall into two major categories:

Protection policies - designed to provide a benefit in the event of specified

event, typically a lump sum payment. A common form of this design is term

insurance.

Investment policies - where the main objective is to facilitate the growth of

capital by regular or single premiums. Common forms are whole life,

universal life and variable life policies.

Parties to contract

There is a difference between the insured and the policy owner (policy holder),

although the owner and the insured are often the same person. The policy owner is

the guarantee and he or she will be the person who will pay for the policy. The

insured is a participant in the contract, but not necessarily a party to it.

The beneficiary receives policy proceeds upon the insured's death. The owner

designates the beneficiary, but the beneficiary is not a party to the policy. The owner

can change the beneficiary unless the policy has an irrevocable beneficiary

designation.


Contract terms

Special provisions may apply, such as suicide clauses wherein the policy

becomes null if the insured commits suicide within a specified time. Any

misrepresentation by the insured on the application is also grounds for

nullification.

Life insurance contracts are written on the basis of utmost good faith. That is,

the proposer and the insurer both accept that the other is acting in good faith.

This means that the proposer can assume the contract offers what it represents

without having to fine comb the small print and the insurer assumes the

proposer is being honest when providing details to underwriter.

Costs, insurability, and underwriting

The insurer (the life insurance company) calculates the policy prices with intent to

fund claims to be paid and administrative costs, and to make a profit. The cost of

insurance is determined using mortality tables calculated by actuaries. Mortality

tables are statistically-based tables showing expected annual mortality rates. It is

possible to derive life expectancy estimates from these mortality assumptions. Such

estimates can be important in taxation regulation. The three main variables in a

mortality table have been age, gender, and use of tobacco.

The insurance company receives the premiums from the policy owner and invests

them to create a pool of money from which it can pay claims and finance the

insurance company's operations. Rates charged for life insurance increase with the

insurer's age because, statistically, people are more likely to die as they get older.

The insurer investigates each proposed insured individual unless the policy is below a

company-established minimum amount, beginning with the application process. This

investigation and resulting evaluation of the risk is termed underwriting.


http://en.wikipedia.org/wiki/Underwriting

http://en.wikipedia.org/wiki/Tobacco

http://en.wikipedia.org/wiki/Actuary

TYPES OF LIFE INSURANCES

Life insurance may be divided into two basic classes – temporary and permanent or

following subclasses - term, universal, whole life and endowment life insurance.

TEMPORARY TERM

Term assurance provides for life insurance coverage for a specified term of years for a

specified premium. The policy does not accumulate cash value. Term is generally considered

"pure" insurance, where the premium buys protection in the event of death and nothing else.

The three key factors to be considered in term insurance are: face amount (protection

or death benefit), premium to be paid (cost to the insured), and length of coverage

(term).Various insurance companies sell term insurance with many different

combinations of these three parameters.

PERMANENT TERM

Permanent life insurance is life insurance that remains in force (in-line) until the

policy matures (pays out), unless the owner fails to pay the premium when due (the

policy expires OR policies lapse). The policy cannot be canceled by the insurer for

any reason except fraud in the application, and that cancellation must occur within a

period of time defined by law (usually two years). Permanent insurance builds a cash

value that reduces the amount at risk to the insurance company and thus the insurance

expense over time

The four basic types of permanent insurance are whole life, universal life, limited

pay and endowment.

a) Whole life coverage

Whole life insurance provides for a level premium, and a cash value table included in

the policy guaranteed by the company. The primary advantages of whole life are

guaranteed death benefits; guaranteed cash values, fixed and known annual


premiums, and mortality and expense charges will not reduce the cash value shown in

the policy. The primary disadvantages of whole life are premium inflexibility, and the

internal rate of return in the policy may not be competitive with other savings

alternatives.

b) Universal life coverage

Universal life insurance (UL) is a relatively new insurance product intended to

provide permanent insurance coverage with greater flexibility in premium payment

and the potential for a higher internal rate of return. A universal life insurance policy

includes a cash account. Premiums increase the cash account. Interest is paid within

the policy (credited) on the account at a rate specified by the company. Mortality

charges and administrative costs are then charged against (reduce) the cash account.

c) Limited-pay

Another type of permanent insurance is Limited-pay life insurance, in which all the

premiums are paid over a specified period after which no additional premiums are

due to keep the policy in force. Common limited pay periods include 10-year, 20-

year, and paid-up at age 65.

d) Endowments

Endowments are policies in which the cash value built up inside the policy, equals the

death benefit (face amount) at a certain age. The age this commences is known as the

endowment age. Endowments are considerably more expensive (in terms of annual

premiums) than either whole life or universal life because the premium paying period

is shortened and the endowment date is earlier.


BENEFITS OF LIFE INSURANCE

Life insurance is a unique investment that helps you to meet your dual needs - saving

for life's important goals, and protecting your assets. The core benefit of life

insurance is that the financial interests of one’s family remain protected from

circumstances such as loss of income due to critical illness or death of the

policyholder. Simultaneously, insurance products also have a strong inbuilt wealth

creation proposition.

Life insurance is the only investment option that offers specific products tailor made

for different life stages. It thus ensures that the benefits offered to the customer reflect

the needs of the customer at that particular life stage, and hence ensures that the

financial goals of that life stage are met.

Life Insurance is also an effective tool to save tax.

Social benefits:

Insurance cover for the employees of a company is an important aspect of social

security benefits package. It includes insurance policies relating to medical benefits,

compensation to worker's as well as provident funds.

Economic benefits:

a) If an estate owner has not accumulated enough assets for his family,

Insurance quote helps create an instant estate for the sake of the Family’s

security.

b) Life Insurance provides the option to pass equal assets to the children who

are not active in the Family business at the time the family business is passed

on.

c) Life Insurance policies can help secure the future of children for

college/educational purposes as the amount of life Insurance Policy increases

on a minor’s or parent’s life.

d) The growth of a cash-value policy is tax-deferred - you do not pay taxes on

the cash value accumulation until you withdraw funds from the policy.


http://www.iciciprulife.com/public/Life-plans/Plan-Life-need.htm



e) Life Insurance can be useful in paying estate taxes, along with other estate

settlement amounts. Federal Estate Taxes are due nine months after death.

f) If there’s a Business Transfer, life insurance can provide ready cash to

finance a transaction between business owners who are ready to buy the

deceased owner’s share from his or her estate after death.

g) If there’s a home mortgage, one can pass the family residence to their

spouse/children to free them of any mortgage if one has a Life Insurance

Policy for the same. It is preferred to have a decreasing term policy that

decreases in face amount as the mortgage balance is paid down.

h) Life Insurance helps retain your Business from the loss of a key employee.

Untimely death of a key employee can pose severe financial loss to the

business.

i) The right insurance proceeds can provide liquidity to pay off personal loans

or business loans.

j) Charitable Remainder Trusts provide tax benefits. Life Insurance helps

replace a charitable gift.


HISTORY

ORIGIN OF INSURANCE

Insurance began as a way of reducing the risk of traders, as early as 5000 BC in

China and 4500 BC in Babylon. Life insurance dates only to ancient Rome; "burial

clubs" covered the cost of members' funeral expenses and helped survivors

monetarily. Modern life insurance started in late 17th century England, originally as

insurance for traders: merchants, ship owners and underwriters met to discuss deals at

Lloyd's Coffee House, predecessor to the famous Lloyd's of London.

The first insurance company in the United States was formed in Charleston, South

Carolina in 1732, but it provided only fire insurance. The sale of life insurance in the

U.S. began in the late 1760s.

Insurance in India

The history of Insurance industry in India can be divided into three parts: part1 from

1818-1956, part2 from 1956-2000, part3 from 2000 onwards.

Part1 (1818-1956)

The origin of life insurance in India can be traced back to 1818 with the establishment

of the Oriental Life Insurance Company in Calcutta. It was conceived as a means to

provide for English Widows.

In 1912, insurance regulation formally began with the passing of Life Insurance

Companies Act and the Provident Fund Act.

By 1938, there were 176 insurance companies in India. But a number of frauds during

1920s and 1930s tainted the image of insurance industry in India. In 1938, the first

comprehensive legislation regarding insurance was introduced with the passing of

Insurance Act of 1938 that provided strict State Control over insurance business.

Part2 (1956-2000)

In 1956, Government of India brought together 245 Indian and foreign insurers and

provident societies under one nationalised monopoly corporation and formed Life

Insurance Corporation (LIC) by an Act of Parliament, viz. LIC Act, 1956, with a


http://en.wikipedia.org/wiki/Charleston,_South_Carolina

http://en.wikipedia.org/wiki/Charleston,_South_Carolina

http://en.wikipedia.org/wiki/United_States

http://en.wikipedia.org/wiki/Lloyd's_of_London

http://en.wikipedia.org/wiki/England

http://en.wikipedia.org/wiki/Babylon

http://en.wikipedia.org/wiki/China

capital contribution of Rs.5 cr. From 1956-2000 the Insurance industry consisted of

only two state insurers: Life Insurers i.e. Life Insurance Corporation of India (LIC)

and General Insurers i.e. General Insurance Corporation of India (GIC).

The (non-life) insurance business/general insurance remained with the private sector

till 1972. The General Insurance Business (Nationalisation) Act, 1972 nationalised

the general insurance business in India with effect from January 1, 1973. The 107

private insurance companies were amalgamated and grouped into four companies:

National Insurance Company, New India Assurance Company, Oriental Insurance

Company and United India Insurance Company. These were subsidiaries of the

General Insurance Company (GIC)

Part3 (2000-onwards)

With the presence of only two companies the penetration level of the insurance

industry in India was very less. To overcome this problem the Indian govt undertook

insurance reforms in the year 1999-2000. Private companies were allowed into the

business of insurance with a maximum of 26 per cent of foreign holding. On July 14,

2000 Insurance Regulatory and Development Authority bill was passed to protect

the interest of the policyholders from private and foreign players. With the entry of

private players the insurance industry has been growing rapidly. The entry of the

State Bank of India with its proposal of bank assurance brings a new dynamics in the

game.

The insurance sector in India went through a full circle of phases from being

unregulated to complete regulation and then currently being partly deregulated. It is

governed by a number of acts.

a) The Insurance Act, 1938


The Insurance Act, 1938 was the first legislation governing all forms of insurance to

provide strict state control over insurance business.

b) Life Insurance Corporation Act, 1956

Even though the first legislation was enacted in 1938, it was only in 19 January 1956,

that life insurance in India was completely nationalized, through a Government

ordinance. The Life Insurance Corporation of India was created on 1 September,

1956, as a result and has grown to be the largest insurance company in India as of

2009.

c) General Insurance Business (Nationalization) Act, 1972

The General Insurance Business (Nationalization) Act, 1972 was enacted to

nationalize the 100 odd general insurance companies and subsequently merging them

into four companies. All the companies were amalgamated into National Insurance,

New India Assurance, Oriental Insurance, and United India Insurance which were

headquartered in each of the four metropolitan cities.

d) Insurance Regulatory and Development Authority (IRDA) Act,

1999

Till 1999, there were not any private insurance companies in Indian insurance sector.

The Govt. of India then introduced the Insurance Regulatory and Development

Authority Act in 1999, thereby de-regulating the insurance sector and allowing

private companies into the insurance. Further, foreign investment was also allowed

and capped at 26% holding in the Indian insurance companies.


http://en.wikipedia.org/wiki/1972

http://en.wikipedia.org/wiki/1956

http://en.wikipedia.org/wiki/January_19

Existing Insurance Companies/Corporations in India

1. Bajaj Allianz Life Insurance Company Limited

2. Birla Sun Life Insurance Co. Ltd

3. HDFC Standard life Insurance Co. Ltd

4. ICICI Prudential Life Insurance Co. Ltd.

5. ING Vysya Life Insurance Company Ltd.

6. Life Insurance Corporation of India

7. Max New York Life Insurance Co. Ltd

8. Met Life India Insurance Company Ltd.

9. Kotak Mahindra Old Mutual Life Insurance Limited

10. SBI Life Insurance Co. Ltd

11. Tata AIG Life Insurance Company Limited

12. Reliance Life Insurance Company Limited.

13. Aviva Life Insurance Co. India Pvt. Ltd.

14. Sahara India Life Insurance Co, Ltd.

15. Shriram Life Insurance Co, Ltd.

16. Bharti AXA Life Insurance Company Ltd.

17. Future Generali Life Insurance Company Ltd.

18. IDBI Fortis Life Insurance Company Ltd.

19. Canara HSBC Oriental Bank of Commerce Life Insurance Co. Ltd

20. AEGON Religare Life Insurance Company Limited.

21. DLF Pramerica Life Insurance Co. Ltd.

22. Star Union Dai-ichi Life Insurance Comp. Ltd.

23. National Insurance Company Ltd.


Max New York Life Insurance Company Ltd.

Overview

Max New York Life Insurance Company Ltd. is a joint venture between New York

Life; a Fortune 100 company and Max India Limited; one of India's leading multi-

business corporations. The company has positioned itself on the quality platform. In

line with its vision to be the Most Admired Life Insurance Company in India, it has

developed a strong corporate governance model based on the core values of

excellence, honesty, knowledge, caring, integrity and teamwork. The strategy is to

establish itself as a Trusted Life Insurance Specialist through a quality approach to

business.

Incorporated in 2000, Max New York Life started commercial operation in 2001. In

line with its values of financial responsibility, Max New York Life has adopted

prudent financial practices to ensure safety of policyholder's funds. The Company's

paid up is Rs. 1,782 crore.

Having set a Best in Class Agency Distribution Model in place, the company is

spearheading a major thrust into additional distribution channels to further grow its

business. The company has multi-channel distribution that includes the agency

distribution, partnership distribution, bancassurance, distribution focused on

emerging markets and alliance marketing through employed sales force. The

company currently has 33 bancassurance relationships, 14 corporate agency tie-ups

and direct sales force at 14 locations. Max New York Life has put in place a unique

hub and spoke model of distribution to deepen rural penetration. The company has

133 (13 hub office, 120 spoke offices) offices dedicated to emerging markets in

Punjab and Haryana. Max New York Life offers a suite of flexible products. It now

has 36 products covering both life and health insurance and 8 riders that can be

customized to over 800 combinations enabling customers to choose the policy that

best fits their need. Besides this, the company offers 6 products and 7 riders in group

insurance business. The company currently has more than 15,362 employees.


Vision: To be the most admired Life Insurance Company in India.

Values: The Company has a strong corporate governance model based on the core

values of excellence, honesty, knowledge, caring, integrity and teamwork.

Mission: To be among top 5 pvt life insurance companies by profitable new business

sales, brand choice, employer of choice, principal of choice for distributor and

suppliers.

Promoters

Max New York Life Insurance Company Ltd. is a joint venture between New York

Life, a Fortune 100 company and Max India Limited, one of India's leading multi-

business corporations. Since its inception in 2000, the organization has progressed

and positioned itself on the quality platform.


MANAGEMENT

Board of Directors

Mr. Analjit Singh

Chairman,

Max India Limited

Mr. Anuroop (Tony) Singh

Vice Chairman,

Max New York Life Insurance

Mr. Rajesh Sud

CEO & Managing Director,


Mr. Rajit Mehta

Executive Director & Chief Operating Officer,


Mr. John Harrison

Director,


Mr. Richard Mucci

Director,


Dr. Omkar Goswami

Director,


Mr. Rajesh Khanna

Director,



Management Team

Rajesh Sud

Managing Director and CEO,

Rajit Mehta

Chief Operating Officer

Anil Mehta

Senior Director - New Markets SBU

Sunil Kakar

Senior Director& Chief Financial Officer

Ajay Seth

Senior Director- Legal & Compliance

Debashis Sarkar

Senior Director & Chief Marketing Officer

John Poole

(Appointed actuary)


ORGANISATION FLOW CHART

N.L.Dalmia Institute Of Management Studies And Research

MANAGING DIRECTOR

VICE PRESIDENT

ASSISTANT VICE PRESIDENT

REGIONAL MANAGER

MULTI PARTNER MULTIPLE LOCATION

PARTNER IN CHARGE

PARTNER

ASSOCIATE PARTNER

ASSOCIATE SALES MANAGER/SALES MANAGER

ASSOCIATEAGENCYPARTNER

ADVISOR

23

PRODUCTS

Max New York Life Insurance Company Ltd has divided its products into two main

categories INDIVIDUAL plans and CORPORATE plans.

Individual products are mainly categorised into Protection plans, children plans,

Investment plans, Retirement plans, Health plans, Savings plans, Emerging Market

plans and Strategic Management plans which meet the different requirements of an

individual. Each of the above categories has different types of products which provide

customers with an option to select a product that suits there needs.

Corporate plans consist of GROUP plans which have a variety of products to meet

the different requirements of an organisation.

INDIVIDUAL PRODUCTS

1) Protection plans

There are two types of protection plans.

Five Yr Renewable and Convertible™ Plan (Non - Par)

This plan not only provides you with a low cost insurance cover during its tenure

of five years, it also helps you plan in advance for various future needs and your

family's financial security, should anything unfortunate happen to you.

An important feature of this policy is that it allows the insured to convert the policy to

a regular policy during the tenure of the policy.

Level Term Policy (Non - Par/Non - Con)

This plan covers your life at a very low cost and reduces the consequent

hardship your family may have to bear in the unfortunate event of your death. In case

of the unfortunate death of the policy holder during the term of the plan, an amount

equal to the sum assured is paid to the nominee.


2) Children plans

Children's Endowment to 18 (Par) Plan and Children's Endowment to 24 (Par)

Plan.

Both these plans provide customers with an option to buy a permanent life

insurance policy without medical underwriting (irrespective of his/her health at that

time). This policies are especially designed to enable parents to provide for higher

education of there child and take care of the child’s future needs in case of spiralling

costs.

SMART Steps™ Plan, SMART Steps ™ Plus, and SMART Steps ™ Single

Premium Plan

These plans will help parents to plan for there child's future in a SMART way and

takes there worries away. This plan offers the required financial protection for there

loved ones if they are not alive and provides an unmatched investment opportunity by

way of well managed investment funds. This policy also entitles the customer to

make partial withdrawals for various unplanned expenses in the future.

3) Investment plans

The Investment Plans offered by Max New York Life provide the dual benefit of

protection and market-linked returns with the flexibility to choose the premium and

determine the market exposure. There are a variety of products which can meet the

needs of different types of customers. These products are,

a) Life Maker™ Premium Investment Plan

b) Life Maker™ Platinum Plan

c) Life Maker™ Gold Plan

d) SMART Assure Plan

e) Max New York Life SMART Xpress Plan

The plans provide a customer with an opportunity where he can direct his investments

in the customized unit linked funds such as equities, money market instruments,

investment grade corporate bonds, and government securities. These funds offer a

wide range of returns basis market returns. The customer can also choose to invest his

premiums in one or more of these funds, based on his risk taking ability.


4) Retirement plans

Easy Life™ Retirement (Par) Plan

Max New York Life's Easy Life™ Retirement Plan Regular Premium/Single

Premium (Participating) Policy is designed to help you save money for your

retirement. It also provides you with an opportunity to take home a regular retirement

income (i.e. pension).

SMART Invest™ Pension Plan

Max New York Life's SMART Invest™ Pension Plan is a comprehensive unit linked

pension plan to meet your post retirement financial needs, ensuring you complete

peace of mind. One-third of the corpus can be commuted at vesting age the amount

commuted are eligible for tax exemption u/s 10A

5) Health plans

LifeLine MediCash™ Plan & LifeLine MediCash™ Plus Plan

These health Insurance plans from MNYL provide support to the individual by

giving him hospital cash benefit, whenever he is hospitalized. Through this plan he

can get a fixed benefit towards hospitalization, ICU and recuperation (post

hospitalization). The second (plus) plan In addition provides the surgical expenses of

a fixed Lump-sum for more than 400 listed surgeries that he may undergo.

LifeLine Wellness™ Plan

Max New York Life's LifeLine-Wellness™ is a health plan, which provides an

individual with a 360-degree benefit in terms of long tenure of coverage, coverage for

10 critical illnesses, and permissible tax benefit under an Income Tax Act.

LifeLine Wellness™ Plus Plan

Max New York Life's LifeLine-Wellness™ Plus health plan provides a

wonderful benefit system in terms of long tenure of coverage, coverage for 38 critical

illnesses and tax benefit.

LifeLine-Safety Net™ Plan

Max New York Life Insurance Company offers this term cum health insurance -

LifeLine-Safety Net™ , the new age insurance covering death, disability, disease and

accident under one single plan.


6) Savings plans

Max New York Life’s saving plans provide an all round financial protection, and

include a life cover that will protect an individual till the last day. These savings plans

are designed to provide the customer the dual benefits of protection along with the

potentially higher returns.

These plans are,

Whole Life Participating plan

The Whole Life Plan provides an insurance cover that is guaranteed for life. The

policy also builds cash value, which you can use to fund any unforeseen needs.

20 year Endowment (Par) plan

On its maturity at the end of 20 years, this Policy not only gives you a

guaranteed sum but also any bonus it accumulates.

Life Gain™ Plus 20 (Par) & Life Gain™ Plus 25 (Par)

These plans provides an individual with an insurance cover that is guaranteed for

20 years and 25 years down the line respectively

Life Pay™ Money Back, Life Gain™ Endowment, Life Partner Plus

The above three plans also provide a wide range of options for a customer to

choose from.

7) Emerging market plans

Easy term policy

Easy Term Policy is designed to provide the insured with an insurance cover

during the tenor of the policy till age 60. This policy also offers a special claim

concession where if the life insured dies within 6 months of the last unpaid premium,

the claim will still be honoured.


8) Strategic products plan

These plans are divided into three types Bancassurance, Partnership

Distribution and Max Amsure.

Bancassurance

Capital builder plan

It provides fixed life coverage, simple fund options and plan terms. This plan

also gives an edge to you to choose any one of the investment plans amongst Govt.

Securities, Corporate Bonds (Investment Grade), Money Market Instruments/Cash or

Equities.

Partnership distribution

Max Mangal

Max Mangal™ Endowment (Participating) Policy is a unique plan with limited

premium paying term by which you can reduce your financial burden and enjoy

increasing life cover for the entire term.

Max Vriksha

The Max Vriksha™ Money Back (Participating) Policy is an exceptional plan that

provides you regular lump sum payments at fixed intervals to cater to your periodic

needs and keeps the balance for your long-term savings needs.

Capital Builder & Max New York Life Unit Builder plans

Max New York Life Unit Builder is an insurance plan that offers guaranteed

returns in an uncertain environment.

It offers you the twin advantage of a risk cover and market returns to suit your needs

and risk profile..

MAX AMSURE

Future Builder


Max Amsure Future Builder Policy enables you to provide for specific needs of your

child such as wedding of your child and also builds cash value, which you can use for

any unforeseen events by taking a loan

Bonus Builder

Max Amsure Bonus Builder Policy provides an insurance cover that is guaranteed

for your entire life. This policy will always help you in fulfilling unforeseen, urgent

needs through its various riders

Business Builder

Max Amsure Business Builder Policy provides an insurance cover during the

tenure of the policy with a maturity benefit: with either 20 year term or 120% of

premiums paid.


CORPORATE PRODUCTS

Group Plans

Group Credit Life

Max New York Life offers Group Credit Life plan, which provides life cover for a

group of employees who are borrowers from the same employer, (or some credit

institution, bank, finance provider etc.) by paying a lump sum towards repayment of

loan amount on the death of employee.

Group Gratuity cum Term Assurance

Max New York Life's Group Gratuity cum Term Assurance plan is especially

designed to enable you to fund your gratuity obligation in an organized and

convenient manner while enjoying tax benefits at the same time.

Unit Linked Group Gratuity Plan

The Unit Linked Group Gratuity Plan facilitates steady funding and the opportunity

of increased returns on investment.

Max Super Life

A single master policy for all employees, Max Super Life is the mainstay of our

employee benefit platform. This easy and convenient policy is valid for one year and

can be renewed annually.

Group Term Life

This easy and convenient policy is valid for one year and can be renewed annually.

In case of death of an employee, due to natural or accidental reasons, the entire sum

assured amount is paid to the employer.


WORLD ECONOMY OUTLOOK

In little over a year, the mid-2007 sub-prime mortgage debacle in the United States of

America has developed into a global financial crisis and started to move the global

economy into a recession. Aggressive monetary policy action in the United States and

massive liquidity injections by the central banks of the major developed countries

were unable to avert this crisis. Several major financial institutions in the United

States and Europe have failed, and stock market and commodities market have

collapsed and become highly volatile. Since early October, policymakers in the

developed and developing countries have come up with a number of more credible

and internationally concerted emergency plans. The measures have reshaped the

previously deregulated financial landscape; massive public funding was made

available to recapitalize banks, with the Government taking full or partial ownership

of failed financial institutions and providing blanket guarantees on bank deposits and

other financial assets in order to restore confidence in financial markets and stave off

complete systematic failure. These measures have really worked in favor of economy

and all major world markets have started recovering showing good signals.

GROWTH RATE:

Growth in world gross product (WGP) is expected to slow to 1.0 per cent in 2009, a

sharp deceleration from the rate of 2.5 per cent estimated for 2008 and well below the

more robust pace in previous years. While most developed economies are expected to

be in a deep recession, a vast majority of developing countries is experiencing a sharp

reversal in the robust growth registered in the period of 2002-2007, indicating a

significant setback in the progress made in poverty reduction for many developing

countries over the past few years. The prospects for the Least Developed Countries

(LDCs), which did so well on average over the past years, are also deteriorating

rapidly. Income per capita for the world as whole is expected to decline in 2009.


Below is a chart displaying GDP growth of Emerging, Advanced and World

Economies.

It clearly shows that Emerging and developing economies have outperformed

advanced economies over a period of a decade (2000-2010).


ANALYSIS OF FINANCIAL HOUSING

COMPANIES

INDIAN HOUSING SECTOR

The Indian housing finance industry has grown by leaps and bounds in past few

years. The robust growth experienced by the industry in the last few years has been

triggered by a number of factors. Earlier the cost of the house used to be in multiple

of nearly twenty times the annual income of the buyers, whereas today that multiple

is less than 4.5 times. This multiple has come down mainly because income levels

have gone up, while the tax rates have fallen. So with less tax and more income there

is more money left with people to spend. Also interest rates, which earlier used to be

between 16-

18% in past - that has halved. Further property prices have significantly declined or

remained stable over the last 7 to 8 years. Moreover the Government has been

providing tax incentives to people to buy house with the interest on housing loans

now tax deductible upto1.50 lacs per annum.

The industry growth is also being driven by other factors like evolution of the nuclear

family system, an increasing per capita income, the gradual disintegration of the joint

family system, a desire for independent home ownership and an increasing preference

to finance the acquisition than pay for it cash down. The sector has emerged as one of

the outstanding successes over the last decade, second perhaps only to the country's

software industry. It is growing at an estimated annual rate of 28 to 30%.

Prospects of the housing finance industry look encouraging mainly due to the fact that

the gap in demand and supply has not been corrected adequately. As per the current

estimates, India faces a shortage of about 40 million dwelling units and this backlog

is growing. To plug this gap, an estimated Rs 200000 crore will be required and with

only 25% of this requirement expected to come from the formal sector, a growing

role for the housing finance sector can be visualized.


Realistic property prices, low interest rates, tax incentives and innovative products

offered by housing finance companies augurs very well for the growth of the housing

sector. Moreover securitisation and foreclosure norms will pave the way for the

creation of an active secondary mortgage market, enhance the liquidity into the sector

at low cost and speed up the loan recovery mechanism thereby increasing the pool of

lendable resources.

However, the industry has become over crowded, with players of all sizes. The entry

of banks into the sector has further intensified competition. Increasing competition

has forced various small sized housing finance companies, which faces squeeze on

margins to reconsider their strategy, thereby providing an opportunity for inorganic

growth for other developing housing finance companies.

Major players in the financial housing sector

Housing Development Finance Corporation Limited

L I C Housing Finance Limited

Dewan Housing Finance Corporation Limited

G I C Housing Finance Limited

International Housing Finance Corporation Limited

Gruh Finance Limited

S B I Home Finance Limited

Sahara Housingfina Corporation Limited

Mehta Housing Finance Limited

Usha Housing Development Company Limited


The current scenario of the housing sector

India continues to be amongst the fastest growing nations in the world, backed by

among other things, increased job opportunities, higher disposable incomes, a

growing middle-income group and tax saving opportunities, which continue to be

available on interest and principal re-payments on housing loans. The growing

affluence of the middle class has acted as a great impetus for big housing projects

taking off in tier I and tier II cities.

The Indian housing finance sector has been insulated from the subprime crisis in the

US owing to various factors like availability of plain vanilla financial products in the

market, limited exposure of Indian financial system to highly leveraged structured

products, timely measures by the authorities to control asset bubbles etc.

Further, the Indian housing market is facing an acute demand-supply mismatch with

the housing shortage expected to rise to 26.53 million units by 2012 from the current

shortage of 24.7 million units. It is also estimated that most of this shortage pertains

to the economically weaker sections and low-income groups.

Home loans to Gross Domestic product (GDP) Ratio in India is 7.25% as against 80%

in developed countries like United States and United Kingdom, according to

Assocham. This indicates a huge growth potential for the housing sector and in turn

presents a fantastic growth opportunity for the housing finance industry.

Mortgages as percent of GDP for various countries around the world


Demand Drivers for the Housing Industry

1) Population

2) Urbanisation

3) Nuclearisation

4) Affordability

Population:

Population growth has a direct bearing on the requirement for housing units. Further, in the

current scenario, population growth is actually occurring in the younger age brackets. This is

estimated to translate into a large increase in working population, thereby translating into

greater demand for housing.

India is not just the second largest country in the world; it also has the youngest population –

a unique combination. Of the country's population 60% is 29 or below in age; compare this

with corresponding numbers of 47% for China, 42% in the US and 33% in Japan. So even as

the populations of these countries will age faster, India's will remain vigorously income

earning. In fact, the geriatric population - also classified as financially unproductive – across

these countries will be the lowest in India

Estimated Growth in Population from 2001-12


.

Besides, the Indian middle-class is expected to grow from around 57 mn in 2001-02 to

around 92 mn by 2005-06 and 153 mn by 2009-10 (Source: NCAER). Households with

earnings greater than Rs.10 lakh are expected to grow from 0.8 mn in 2002 to 3.8 mn in 2010

(Source: NCAER), which will immediately translate into robust and sustained demand for

quality housing.

Urbanisation:

The share of urban population has increased steadily to around 27% of total. In the

past two decades, urban population has grown at 2.77%, a little higher than the

overall population growth of 2.3%. Going forward, the pace of urbanisation is

expected to accelerate. This is expected to translate into urban population growth of

2.27% till the year 2011 as compared with overall population growth of 1.5%. This

difference in growth rates implies that the gap between the urban and rural population

will narrow.

Expected movement in urban and rural population:

Nuclearisation:


Urbanisation has twin impact on housing demand. On the one hand, it reduces the

area per household, and on the other, there is an increasing need for more nuclear

families, leading to the formation of more number of households. The fact that urban

house prices are higher also leads to buying smaller areas in comparable income

categories.


Affordability:

Impact of Rising Income on the housing industry:

India is witnessing a steady movement of households into higher income categories.

Urban households with incomes above Rs 500,000 are further expected to grow by

12% in the next 5 years on an increased base thus implying that the shift is more

pronounced in the high-income categories. Rural households, in the same income

class, are expected to grow by 7%. The growth rate, though comparatively lower than

the past 5-year average, reflects an adjustment of a higher base in incomes.

Growth rate in incomes – Urban and Rural – 2007-2012:

Impact of interest rate increase on loan amounts:

EMI remaining constant, the loan amount is inversely proportional to the interest rate

and directly proportional to the tenure. Rising interest rates increase the monthly EMI

for the individual. For new houses, the rising interest rate reduces the maximum

amount an individual can borrow, thereby reducing the ability to go for higher value

or bigger houses. In a falling interest regime, the EMI would typically fall, leading to

a higher eligibility for loans while in a rising interest scenario the situation is reverse.

Impact of interest rate increase on loan amounts:


The threat for stand-alone housing finance companies comes from commercial banks, which

have an established vast network and access to funds at a comparatively cheaper cost,

continuing to be active players in this segment. However, there is ample scope for expansion,

based on novel marketing initiatives, professional expertise and customer friendly approach.


COMPANY VALUATION

LIC Housing Finance Ltd

Company Profile

LIC Housing Finance Ltd. is one of the largest Housing Finance companies in India.

Incorporated on 1989, LIC Housing Finance (LICHFL) was promoted by Life

Insurance Corporation of India with equity participation from UTI, ICICI and IFCI.

The main objective of the Company is providing long term finance to individuals for

purchase, construction, repair and renovation of new and existing houses. The

Company also provides finance on existing property for both business and personal

needs and gives loans to professionals for purchase, construction of Clinics, Nursing

Homes, Diagnostic Centres, Office Space etc. The mission of the company is to

provide secured housing finance at affordable cost, maximizing shareholders value

with higher customer sensitivity

Management

Chairman Mr T.S.Vijayan

Managing Director Mr D.K.Mehrotra

.

Stock Details

Stock exchange code Reuters code Bloomberg code

BSE Code: 500253

NSE Code:LICHSGFIN

BSE–LICH.BO BSE-LICHF@IN


(As on 31-Dec-2008)

Price Chart of LIC Housing Finance for the last 10 years from

FY99-09

price fluctuations of LIC Housing Finance

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Favourable Factors

1) Good performance even during the slow down

N.L.Dalmia Institute Of Management Studies And Research

Shareholding pattern %

Promoters 40.84

MFs/Banks/Fis 14.32

Foreign 27.06

Non-Promoter 5.13

Total Public 12.64

Total 100.00

42

Since the beginning of the current financial year, the financial sector has been facing

the brunt of rising interest rates and slow disbursements. In these extremely

challenging environment, LICHF has been able to weather the storm and has

delivered a healthy performance in areas of business growth and profitability and has

made significant improvement in the asset quality.

The company's interest income grew by more than 30% year-on-year for the nine

months ended December '08. The company’s disbursements, both sanctions and

approvals, have been growing at above 25% during this period, which is in line with

its performance last year. The disbursements are expected to improve with the cost

of funds coming down. The company is looking to disburse Rs 9,500 crore by the

end of the current financial year as against Rs 7,071 crore in the previous financial

year.

2) Improving Asset Quality

NBFCs typically face delinquency risks, which surface during times of a slowdown,

when borrowers are not able to make the interest payments on their loans.

LICHF’s gross non-performing assets (GNPAs) stood at 1.69% as of end-December

'08, compared to 2.77% a year ago, whereas net non-performing assets (NPAs) stood

at 0.73% of its net advances as of end-December '08, compared to 1.61% a year ago.

This shows that the company's quality of loan book has improved tremendously in

the past one year and it has been efficient in managing delinquency risks.

The management attributes the reduction in NPA to active loan management and

adequate provisions in the past.

With adoption of better and stricter risk management process and concerted efforts

on NPA recoveries, the company is aiming to achieve a GNPA level of 1.50%, as

compared with 1.70% last year.

3) Healthy growth in loan book

LICHF has been steadily growing its loan book with loan sanctions and disbursal

growing at a compounded annual growth rate (CAGR) of 30% and 20% respectively

in the last three financial years. For the nine months ended December 2008 the

Company sanctioned Rs 7360 crore and disbursed Rs 5623 crore, an increase of 29%

and 26% respectively.


The primary focus of LICHF has been on retail client though it has tie-up with

corporate clients. Given the cost of funds coming down and interest rate easing

further, LICHF expects to grow its loan book at a CAGR of 21% over a period

of FY2008-10 (E)

4) Reliance on floating rate structure

LIC Housing is increasingly relying on floating rate borrowing and lending which

helps to protect margins in volatile interest rate scenario. Currently the company

maintains its loan book with 93% of the outstanding individual loans offered at

floating rate. The higher exposure to the floating rate loans has enabled LICHF to

maintain its Net interest margin (NIM) by periodically passing on the effect of

changes in its own borrowing cost to customers. The focus on protecting margins

by adopting this business strategy will ensure stable growth in profitability in the

future.

The cost of funds has been increasing continuously, but yields have also gone up.

NIM improved to 3.23% in the last quarter, as against 2.87% in the third quarter a

year ago.

With inflation coming down, it appears that the cost of funds and interest rate will

come down further. The reduction in rates is also expected to boost the demand for

home loans.

5) Strong parentage

Life Insurance Corporation (LIC), which owns 40.8% of LICHFL, is a well-known

brand (leader in the Life Insurance Sector in India) and has high safety perception.

The company uses the agency network of the parent and so can potentially leverage

on a huge customer base. LIC of India helps the company to raise funds in times of

liquidity crunch by participating in its bond offerings. Also due to its parentage, the

LICHF enjoys equally good brand recall. Further the public sector nature of the

parent has helped LICHFL to follow a conservative approach in terms of loan

disbursements helping to mitigate downside risks.

6) Attractive dividend yield


LIC Housing has been consistently increasing the rate of dividend since the last four

financial years. Over the last four years, dividend paid increased from 50% in the

financial year ended 2005 to 100% (Rs 10 per share) in the financial year ended 2008.

Even if we assume that status quo is maintained, yield works to be more than 5%.

7) Floating a new financial services arm

With a view to strengthening its distribution, LICHFL is all set to launch its financial

services subsidiary, LIC Housing Finance Financial Services, in this quarter. To

start with, the company's product suite would include home loans, insurance products

and mutual funds and going forward it would add other third-party products. This will

help the company to improve its disbursement of loans and other financial

products.

8) New Initiatives

LICHF has developed its reverse mortgage product and is expected to launch the

same in the near future. LICHF Care Homes Ltd’s business of developing the land

and running “Assisted Living Community Centre” is also expected to provide a

further boost to the bottom line. The floating of venture capital fund will benefit

LICHF to raise fee income in future.

9) Strong industry growth

LIC Housing Finance has been one of the fastest growing NBFCs over the last five

years mainly due to the strong economic growth seen in India and the rising level of

disposable incomes, which has fuelled the demand for housing loans.

Currently, the Indian housing market is facing an acute demand-supply mismatch

with most of the shortage coming from economically weaker sections and low-

income groups. In order to capture a share of this huge opportunity, the company

has stepped up its promotional activities, which has improved its share in housing

loans from 5% to 7%.

Key Concerns

1) Extension of special schemes may hurt margins


LICHFL has offered special schemes offering home loan rates at 8.75% for loans

upto 3mn. Extension of such schemes coupled with further rate cuts will impact

margins negatively.

2) Competition from Banks

Banks are dominant players in the housing finance segment having ~60% market

share. LICHFL may loose market share in case banks become more aggressive in the

home loan segment.


HDFC

Company Profile

Background

HDFC was incorporated in 1977 with the primary objective of meeting a social need -

that of promoting home ownership by providing long-term finance to households for

their housing needs. HDFC was promoted with an initial share capital of Rs. 100

million.

Business Objectives

The primary objective of HDFC is to enhance residential housing stock in the country

through the provision of housing finance in a systematic and professional manner,

and to promote home ownership. Another objective is to increase the flow of

resources to the housing sector by integrating the housing finance sector with the

overall domestic financial markets.

Organisational Goals

HDFC's main goals are to a) develop close relationships with individual households,

b) maintain its position as the premier housing finance institution in the country, c)

transform ideas into viable and creative solutions, d) provide consistently high returns

to shareholders, and e) to grow through diversification by leveraging off the existing

client base.

Management

Executive Chairman Mr Deepak.s. Parekh

Vice-Chairman & Managing Director Mr K.M.Mistry

.

Stock Details

Stock Exchange Codes: Reuters Code: Bloomberg Code:

BSE Code: 500010

NSE Code: HDFC EQ

BSE–HDFC.BO

NSE-HDFC.NS

BSE-HDFC

NSE-NHDFC


Share information as on June 30, 2009:

Paid-up Share Capital Rs. 2,845,603,540.00 comprising of 284,560,354 equity

shares of Rs. 10 each

No. of Shareholders 121,819

Market CapitalisationBSE -> Rs. 66,740.79 crores

NSE -> Rs. 66,722.29 crores

Shareholding pattern as on March 31, 2009

FIIs & FDIs 75%

Individuals 11%

FIs/Banks/Insurance Cos 8%

Mutual Funds 4%

Companies 2%

Total 100%

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1) The Equity shares of the Corporation with Face Value of Rs. 100/- each were

sub-divided to Equity shares with Face Value of Rs. 10/- each with effect

from August 25, 1999.

2) The Corporation issued Bonus Shares on 1:1 basis to the shareholders whose

names appeared in the Register of Members as on December 16, 2002.


Investment Argument

Favourable Factors

1) Market Leader

HDFC is the undisputed market leader in the housing finance industry with a very

strong presence all across the country and in different market segments.

2) Home Loan Strength

Low average loan to value ratio and income to installment ratios

Post dated cheques obtained from most customers or deduction at source

arrangements with employers

Steady level of prepayments

Quality underwriting with experience of over 30 years

3) Corporate strengths

Strong brand – customer base of 3.3 million

Stable and experienced management – average tenor of senior management in

HDFC over 15 years

High service standards

Low cost income ratio: 8.8%.

4) Strong Performance even in a tough environment

HDFC has maintained a high asset quality even in a tough operating environment. In

fact, its asset quality as of March 2009 has shown an improvement over its last year's

performance. Net NPAs formed 0.56% of net advances as on March 2009 compared

to 0.68% during March 2008-end.


5) Strong Performance over the Years

Financial Performance of HDFC over the past 10 years

ROE and EPS for the past 5 years

Key Concerns

1) Growth in sanctions not translating into growth

Despite a high growth in sanctions, HDFC's loan book grew by just 16% in the March

2009 quarter. This is a far cry from the 31% growth in the June 2008 quarter. High

growth in sanctions is not translating into high growth in HDFC's loan book.


2) Competition from Banks

Banks are dominant players in the housing finance segment having 60% market

share. HDFC may loose market share in case banks become more aggressive in the

home loan segment.

3) Competition from other housing companies

HDFC’s interest expense grew by 52% in the March 2009 quarter, while its interest

income grew by only 36%. On the other hand companies like LICHF have shown a

better performance by not letting interest expense grow at a significantly higher rate

compared to interest income even in times of tight liquidity as in December 2008.

LICHF’s interest income grew at 30% and 39% in the March 2009 quarter and Dec

2008 quarter respectively and its interest expense jumped by 34% and 40% in the

same period. It is important for finance companies to maintain this balance, or else

higher growth in interest expense can eat into profits.


DEWAN HOUSING FINANCE

Company Profile:

Dewan Housing Finance Limited (DHFL) is a private sector HFC. It was established

on 11th April 1984 by Mr. R.K.Wadhawan with an unusual objective of providing

housing finance to lower and middle income Indians. It was only the second housing

finance company set in India. Mr. Kapil Wadhawan is the current Vice-Chairman and

Managing Director of the company.

Vision

Transform lives of Indian households by enabling

access to home ownership

Mission

Be easily accessible to every Indian who desires to

own a home.

Understand our customer’s inner needs and speak

their language.

Go to any length to make sure our customers don’t

feel intimidated

.

In the 25 years of its operations, DHFL has focused on providing housing loans to

middle and low income customers in tier-II and tier-III cities (its average loan size

was Rs425,000 in FY09 as compared with Rs1.3m for LIC Housing Finance). The

company operates on the hub-and-spoke model and has nearly 300 points of presence

(PoPs) for business generation, most of which are its own service centres and some

are through tie-ups. It plans to scale up its own PoPs from 213 to 350 and its tied-up

PoPs from 85 to 200. DHFL is positioning itself to take the next leap in its niche

business.

DHFL has a strong presence in West and South India, and has a captive distribution

network covering 188 locations. In North India, it is expanding through its tie-up with

Punjab and Sind Bank (45 PoPs), and in East India, through its tie-up with United

Bank of India (40 PoPs). It also operates through its subsidiary, DVFL’s 25 PoPs.


DHFL has access to the large customer base of HDIL and Spinach, which it can use

to grow its loan book.

The company is planning to increase its location coverage with Punjab and Sind Bank

(PSB) to 200 and with United Bank of India (UBI) to 500 in the next 2-3 years. PSB

and UBI have the option of taking 50% of the loans originated by DHFL on their

books.

Management

Chairman Mr Rakesh Kumar Wadhawan

Vice-Chairman & Managing Director Mr Kapil Wadhawan

Chief Executive Officer Mr Anil Sachidanand

Stock Details

BSE code NSE code BLOOMBERG code

511072 DEWANHOUS DEWH IN

EQUITY CAPITAL

(Rs MN)

FACE VALUE

(Rs)

Eq. SHARES O/S

(Mn)

MARKET CAPITAL

(Rs cr)

742.9 10 74.3 3373.8

Shareholding pattern

Promoters 55.9%

Domestic institutions 23.1%

Foreign 20.3%

Others 7%

Total 100%


PRICE CHART FOR THE PAST TEN YEARS Fy-99-09

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Investment Argument

Favourable factors

1) Superior growth rate

DHFL has been the fastest growing housing finance company in the last five years –

its loan book and disbursements have registered a CAGR of 39% and 37%,

respectively (significantly above peers) over FY04-09.

In FY09, loans grew at a healthy 40% on (1) 34% growth in disbursements, and (2)

lower repayments during the year. Repayment ratio declined to 14% in FY09 from

27% in FY08 due to lower sell-downs of loans.

Strong 40% growth in FY09 is commendable in an adverse business environment;

LICHF grew 26% and HDFC grew 16%.

2) Superior margins that can be sustained

DHFL’s core competence of lending to low and middle income customers gives it

better pricing power and superior margins (3%). The company enjoys higher yield on

loans (13.1%) than its peers. This is despite high yielding builder financing

contributing just 2% of its book as compared to 9% for LIC HF and 12% for HDFC.


However, cost of funds is higher for DHFL due to its lower credit rating (AA+ from

CARE and AA from FITCH), and higher dependence (73%) on banks and FIs. Over a

longer period of time, expected liability restructuring will help to keep margins higher

at 3%+. The management intends to reduce dependence on banks and FIs to 60% and

increase the share of multilateral agencies and NCDs to 33% from 10% currently.

3) Commendable performance on asset quality front

DHFL’s gross NPA ratio improved from 1.6% in FY08 to 1.5% in FY09 and net

NPA ratio improved from 1.1% in FY08 to 1% in FY09. In absolute terms, gross

NPAs increased 28% to Rs856m. Despite exposure to higher risk low income

customers, DHFL’s gross NPAs have remained <1.8% over FY03-09. However,

provision coverage ratio has remained low at 20-30%, as DHFL follows the

provisioning policy as prescribed by NHB and does not make provisions higher than

required by the regulators.

4) To drive earnings by fee income and cost efficiency

DHFL is focusing on growing fee income through three key avenues – insurance

distribution (has tied up with SBI Life and ICICI Lombard), project marketing, and

providing technical services to developers. It is targeting to earn fees to cover its

operating expenses fully.

Last two years’ fee income CAGR is 66% and it accounted for ~25% of operating

expenses in FY09. There is considerable scope for improvement in DHFL’s cost-to-

income ratio of

~35% (compared with ~20% for LIC Housing Finance). Higher fee income and

volume growth would help in bringing down its cost-to-income ratio.

Key Concerns:

1) The business model of tapping lower/middle income group may add extra credit

risk as asset quality may slip in tight market situations.

2) Increasing competition in the untapped markets including Tier II and Tier III

segment may put margins under strain in the future.


3) The cost effective policies may be strained if the firm interest rate scenario

continuing/stretching for a long period of time. This may put pressure on the margins

of DHFL.

4) The profitability of DFHL may be impacted in case of a slowdown in the mortgage

finance industry or slow down in the real-estate segment.


COMPARITIVE ANALYSIS

LOANS GROWTH CAGR FY05-09

TREND IN YIELD ON LOANS %


TREND IN HOUSING LOAN SPREADS

COMPARISON OF KEY RATIOS

Ratios HDFC LICHF DHFL

PE ratio (07/07/09) 29.46 9.45 7.79

EPS (Rs) (Mar, 09) 80.24 62.59 15.16

Sales (Rs crore)

(Mar,09)

3145.77 790.48 204.51

Net Profit Margin

(Mar, 09)

20.71 18.37 15.77

Face Value (Rs) 10 10 10

Last dividend (%) 300 (04/05/09) 130 (23/04/09) 25 (11/05/09)

Return on avg

equity

17.37 23.79 21


Conclusion:

Prospects of the housing finance industry look encouraging in the long run as there

is a very big demand for houses due to fast population growth, rapid urbanisation and

emergence of the nuclear family system. Moreover housing finance companies are

coming up with innovative products suitable for different types of customers. The

reductions in interest rates as well as the rising income levels have made housing

loans accessible to a large number of people. Also, a very strong regulatory

environment in India will protect the housing sector from a sub prime crisis like

situation that occurred in the US. Hence, in the long run housing companies are

definitely a very good investment.

But, the investor has to consider that most of these growth opportunities are already

factored into the price of many of these housing companies like HDFC. Further the

comparison of the three companies shows that DHFL has shown a better

performance than HDFC and LICHF over the past five years. DHFL has more

exposure to the tier1 and tier2 cities from where the future growth is expected, so it is

at an advantage as compared to the other two companies. However the default risk

from these markets cannot be properly evaluated.

Finally, one has to remember that housing loans are a disbursal with relatively long

tenure (10-15 years), hence they expose the lending entities to interest rate and re-

pricing risks also the fungibility from fixed to floating rate schemes can further trims

there margins. Hence inspection of the company’s performance by the investor at

regular intervals is very essential.


BIBLIOGRAPHY

WEBSITES

www.irdaindia.org

www.wikipedia.org/wiki/Insurance

www.maxnewyorklife.com

www.nasscom.in

www.dhfl.com

www.lichousing.com

www.hdfc.com

www.nhb.org.in

www.moneycontrol.com

www.moneycontrol.com

www.bseindia.com

www.nseindia.com

www.nasscom.in

Books

Financial Services and Markets-Dr S.Guruswamy

NEWSPAPERS

Times of India

Economic Times


Analysis of Financial Housing Companies-tauseef Padvekar.

Documents

Transcript of Analysis of Financial Housing Companies-tauseef Padvekar.