Canfin homes ltd


(Hitesh Patel) #1

CANFIN HOMES

CMP 152 MARKET CAP 312 CRORES

TOTAL EQUITY OF 20.48 CRORES WITH 2.048 CR SHARES OUTSTANDING OF RS 10 EACH.

PROMOTER HOLDING 42.1%

COMPANY IS SPONSORED BY CANARA BANK.

CANFIN HOMES IS INTO HOME LOAN BUSINESS MAINLY FOCUSSED ON SOUTH INDIA AND PARTICULARLY BANGALORE.

COMPANY EXPECTS TO ROLL OUT NEW BRANCHES AND TAKE ITS TALLY OF BRANCHES TO 70 BY END OF FY 13 (66 AS ON SEP 12) FROM 52 AS ON FY 12.

TILL FY 11 IT SUFFERED FROM LACK OF FOCUS FROM MANAGEMENT AND SUFFERED FROM VERY SLOW GROWTH. BUT SINCE FY 12, THERE SEEMS TO BE A STRONG FOCUS ON GROWTH WHICH IS REFLECTED IN THE NUMBERS SHOWN BY THE COMPANY.

YEAR

SALES

PAT

EPS

BV

ROE

ROA

2010

214

39

19.1

134

15

1.9

2011

231

43

20.5

152

14.3

1.9

2012

286

43.8

21.4

169.7

13.3

1.8

H1 FY 12

128

18.66

9.1*

H1 FY 13

174

25.9

12.7*

FY 13 P

52.7

25.7

COMPANY IS EXPECTED TO POST EPS OF CLOSE TO 25-26 BASED ON HALF YEARLY RESULTS. BOOK VALUE IS LIKELY TO BE AROUND 190 PER SHARE FOR FY 13.

CAPITAL ADEQUACY RATIO AS ON SEP 12 WAS 15.44. LOAN BOOK AS ON Q2 FY 13 WAS 3200 CRORES.

CANFIN ENJOYS A 5 STAR RATING FROM NHB FOR PURPOSE OF REFINANCING AND AA+ RATING FROM CARE FOR LONG TERM FINANCING FROM BANKS.

CANFIN RELIES ON BANKS (67%) AND NATIONAL HOUSING BOARD FOR ITS FUND NEEDS. COST OF FUNDS CAN COME DOWN IF INTEREST RATES EASE AS THEY ARE EXPECTED TO GOING FORWARD.

GROSS NPA IS 0.9% WHEREAS NET NPA IS NIL

INVESTMENT THEME:

CANFIN HOMES IS EXPECTED TO SHOW STRONG GROWTH DUE TO INCREASED FOCUS OF THE MANAGEMENT ON THE PERFORMANCE OF THE COMPANY. FURTHER ITS MARGINS ARE EXPECTED TO IMPROVE DUE TO EASING OF INTEREST RATES. THIS COULD LEAD TO IMPROVEMENT OF ITS RETURN RATIOS GOING FORWARD.

CURRENTLY STOCK QUOTES AT DISCOUNT TO BOOK VALUE AND APPEARS ATTRACTIVE AS COMPARED TO PEER COMPANIES INSPITE OF A HEALTHY ASSET QUALITY.


(Soumya Kanta Panigrahi) #2

Great find.

Good thing is that being a subsidiary of a prominent PSU bank people will prefer this over other housing finance companies.

Also in Bangalore the real estate activity is at a all time high. Higher than even 2007 levels. So the institution being primarily based out of Bangalore will surely benefit out of this for some time to come…


(Hitesh Patel) #3

sharekhan has an active coverage on canfin homes with a buy target of around 220 from levels of 134.


(Soumya Kanta Panigrahi) #4

Hitesh,

I am very niaveat technial analysis. Howevr I feel there we can get this stock lower levels. Should we wait for some time before getting into the stock?


(Hitesh Patel) #5

soumya

difficult to take a call here. Stock is in trade to trade segment.

Support could come in at around 140 levels.

disc: bought around 152-154 levels. I think if these results continue over next two three quarters then there could be an upside of around 50% from current levels looking at fancy for housing finance companies.

Dewan Housing is another cheap stock but suffers from poor promoter image.


(vinay ambekar) #6

Hi - this looks to be worth pursuing. Do we have any information on how much of the loan book is retail and how much is developer funding? PSU bank typically have lot of developer funding (not aware of Canara Bank in particular) and can park some of them in their housing subsidiaries, and hence are exposed to associated risks. In retail loans defaults are rare andpricing is better.


(Ayush Mittal) #7

The recent performance is pretty good and the stock is cheap. However in past the co has done very poorly on growth and being a PSU one can’t say if this recent growth focus will continue. Lets try to dig out more article on future growth prospects, if possible


(Manish kumar) #8

Hi,

But the cash flow from financing is negative and increasing over the year any reason for that and doesnt debt is comparatively high.


(Soumya Kanta Panigrahi) #9

Link to share khan repot that Hitesh was mentioning earlier


(Soumya Kanta Panigrahi) #10

Link to share khan repot that Hitesh was mentioning earlier


(Soumya Kanta Panigrahi) #11

Guys, I will try to answer the questions as per my analysis. However they may not be correct or even may not make sense. Never the less I will try. :wink:

@Vinay as per the report 98% of the loan is to retail investors where as only 2% is corporate loan. So on those terms the loan book looks very healthy and that shows in their NPA%.

@Ayush, that seems a valid concern. However the scale of operations being so small it shouldn’t be much of a issue for the management which looks very able. But with PSU’s u never know.

@Manish I am very very new to analysing stock financials however what I could make out from the cash flow statement is that the operations are generating positive cash flows. However as the amount of loan disbursement is increasing significantly the institution is utilising more cash for loan disbursement than what is getting generated. Which in a way is good as cash sitting on books is not such a good sign. Not sure though going forward how is the company going to manage this aggression. d:e shouldn’t be a matter for financials institutions and they are generally high.


(Ravikanth) #12

Amazing find Hitesh.

Great job.

Any idea what the net interest margin is?


(Hitesh Patel) #13

Net interest margin are in the range of 3 to 3.5 over the years.

What attracts me about the stock here is that book value will be close to 170 by end of fy 13. With a company with nil NPAs and a business that is growing, I think getting something like 1.5 times book should not be difficult once stock catches market fancy.

So there could be almost 50% upside for the patient investor.

Currently the return ratios are not too great but given time, these things could improve.


(Krishna) #14


**
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This foresight is what is I want to learn & devlope… some help pls…


(vinay ambekar) #15

From 1st glance, co. has many business similarities with Gruh - geographic concentration and hence probably localised knowledge and expertise, focus on retail, small ticket size of loans, focus on semi-urban/rural areas. Yet maybe because of execution skills, the overall financials of gruh are far superior.Key as Hitesh mentioned is whether Canfin can maintain momentum of last 2 quarters (though its too short timeframe to be sure on). Has management changed? Any idea why the sudden focus?

With interest rates headed lower, and the general clamour for low cost housing, prospects for such players are bright.


(Excel Monkey) #16

Hitesh bhai. Does manappuram not look better at exceptional RoA of 3.4%, temporarily RoE of 17% (low compared to historical because of low leverage), FY 14 P/E of 5 and P/B of 0.9. currently leverage is only 4.9 times? imagine what would happen to RoE when it reaches normalized levels of 8X.


(Hitesh Patel) #17

excel,

manappuram is also looking good but sectoral tailwinds and govt antics against gold loan companies might create problems.

With housing finance companies like canfin homes with small ticket loans and with good presence in and around Bangalore were it seems real estate market is really hot, we are not too much worried about unknown factors and govt antics.

Plus looking at valuations of below book value, fy 13 expected EPS of 25 providing an entry point at a forward pe of 6 seems to make canfin homes very attractive.

Since the stock is in trade to trade segment not much movement will be seen soon but once it catches market fancy, I think there could be good upsides.


(Manish kumar) #18

Hi all,

I am quiet new to stock analysis but while going through CANFINHOME balance sheet i have few doubts.

1.Eventhough the growth is housing loan is good Isn’T the industry itself is quiet competitive. All other banks can/are supplying similar product .Infact it is mentioned in Annual report Risks and Concerns Section “ENTRY OF URBAN CO-OPERATIVE BANKS INTO THE HOUSING INDUSTRY WITH ENHANCED LIMITS FOR LENDING HAVE BECOME MATTER OF CONCERN”

2.There is assest liability mismatch Mention under Assest Liability Management “LIABILITY OF 7-10 yrs and ASSEST 10-15 yrs” these make not affect in goodtime but surely impact in bad times.

3.The company start showing promising result only from few quaters.

These are just my observation and love to know the views of other senior members and learn from it.

Thanks


(Kiran) #19

Finally got around reading about this stock.

a) Read through the AR of 2011-12. And 2010-11. And it seems like a copy-paste. I mean, global gyaan pe global gyaan. They speak in generic terms like ‘HFCs face pressure…’ etc. Arre bhaiyya…saara industry chodo…apni company ke baarein mein batao. Mighty disappointed reading the AR. I didn’t glean even one extra insight that I hadn’t gained reading the report.

b) Canara Bank hangover. That is, Canara Bank has got some bad assets on its books and any downturn/black swan on Canara Bank will lead to a de-rating of this stock (don’t ask why - somehow the ‘Can’ in the title makes up for it I guess)

c) Personally, I’d like to wait out a quarter or two on this stock. There is no immediate trigger visible. We are betting on cheap valuations and nothing else. And I’d like to see how the ‘mgmt has put more focus…’ plays out (Between, how did you guys find out that mgmt has decided to put more focus? Just because results are better? If that is the case, isn’t that the reversal of cause and effect and hence conclusion wrong?)

d) Is there any update on the current number of branches and where? I mean, 52 se 70 bolne ke liye theek hai. But kuch hua kya iss baarein mein? Any data here?

As I said, for now it is on my watchlist. Will wait for a quarter or two.


(Vivek Gautam) #20

Seems the turnaround. At Canfin has happened with new MD mr C Ilango taking charge in middle of 2011. The guy appears to be putting in sincere efforts n has been able to bring focus to more growth . The co seems to be moving towards the next orbit n one more thing different I Liked about the company was its insistence on recruiting persons from local region only for that particular local office.

Demand for their product is no problem nor asset deterioration ,execution is the key where it’s PsU culture may pose a challenge. Tomorrow if another lax MD takes charge the downhill will again start.