sambat,
The special reserve as on mar 31 2014 is 22371 lakhs (page number 72 of 2014 AR). 33% of this reserve is 73.82 cr. they need to provide for this amount in 25:25:50 ratio. also from current year we need to provide for this year’s transfer to special reserve too
next year the base effect will not be there when you do y-o-y comparision. but in fy17 we will feel the pinch. considering the present state of affairs in finance ministry, we may get this stopped too
very nice article on NHB DTL mandate http://www.indiainfoline.com/article/news-top-story/deferred-tax-liability-waiting-for-godot-114102800051_1.html
From the original circular:
As per the provisions under Section36(1)(viii) of Income Tax Act, 1961, the specified entity like housing finance company (HFC) is allowed the deduction in respect of any special reserve created and maintained by it, i.e. an amount not exceeding twenty percent of the profits derived from eligible business computed under the head “Profits and gains of business or profession.”
So basically it is an incentive for the HFCs for claiming additional 20% deductions in tax. The issue with the circular is whether to treat it as a permanent benefit or a deferred / temporary benefit. The companies had treated it as a permanent benefit and thus provisioned a lower taxation amount in the financial statements. As per the circular, however, it is recommended to treat it as a deferred benefit because the amount so reserved will be liable to taxation whenever it is distributed as dividends.
So the companies are now required to provision a deferred tax liability amount equal to the balance in special reserve for the last 3 years. Since this amount of 73.99 crores relates to provision of previous years, it is adjusted from the “general reserves” and WON’T impact the P&L or EPS of any year (including the 14-15). The only change in the EPS, due to the above circular, will be in the rate of tax going forward. Thus the normal rate of tax (i.e. excluding the 20% incentive) should be taken for arriving at the expected EPS of any year.
(Disc: I am not an expert in taxation. This is what I have understood from the notes of the compay and the circular.)
i cant understand tax treatment can fin is giving . if u look at other housing fin firm the effective tax rate is much lower can anyone explain. dtl is same for every housing fin firm (roughly 6-7% (tax rate * 20% of PAT) . but cant understand why tax rate is so high for can fin .
company canfin gic gruh lic can fin last qtr
pbt 137.42 153.7 300.84 2112.21 39.29
tax 51.22 40.86 77.71 715.75 16.4
tax(%) 37.27% 26.58% 25.83% 33.89% 41.74%
net profit 86.2 112.84 223.13 1396.46 22.89
one more point that is noteworthy is that LAP(non-housing ) loan has grown from 500cr(7-8%) to 1000cr+ (13%) yoy ,which will be good for long run as nim are higher there but it requires 1% standard asset provisioning (0.4% if housing loan) so this year they have provided more for std. assets.
disc: invested
@bandlab1 @BeingGraham
So,Can fin’s special reserve was about Rs.223.71 crores of which 33% (Rs.73.82 crores) had to be transferred for Deferred Tax Liability.To cover this amount,Can fin is allowed to transfer this amount from General Reserve in the ratio of 25:25:50 for the next 3 years to DTL.This is in addition to the current year’s transfer to special reserve as well.
So,the only impact on the profit and loss would be the tax rate.Could you please tell me how this year’s tax rate is calculated? Is the extra tax is for Rs.18.5 crores that is being provisioned for DTL along with the amount being transferred to the special reserve this year?
Disclosure: Invested.
@kjshah18
If you look carefully, Gruh has listed DTL separately from the tax expense, so adding them up makes tax rate around 32%. Its the same case for GIC. Havent checked LIC.
I guess Can Fin has amalgamated the DTL into Tax expense. Also for Can fin, even though the DTL on Special reserve is listed as 18.5 crore, the total DTL (as per the balance sheet) is 21.61 crore. Secondly, last year there were some DTA as well.
Nevertheless it will be important to read the annual report carefully to better the understand the tax rates.
@kjshah18 @punitm306 - attached is the investor presentation for Q4FY15 for Can Fin Homes - http://www.canfinhomes.com/Can%20Fin%20Homes%20-%2031-03-15%20-%20Final%201307.pdf
As per the presentation, DTL in the tax expense is ~9 crores (pre DTL PAT = 95, and post DTL = 86 crore), so tax expense is ~42 - 43 crore, implying a tax rate of ~30.72% for FY15…
Overall well set for a good FY16…branch expansion slowed down post Q2 to consolidate operations, % of bank borrowings have reduced to 31% from 44% last year, which should reduce cost of borrowings going forward…ROA’s are down to 1.2% which is concerning…
with the rights issue, CAR is comfortable at 18.4% to allow for rapid expansion for next couple of years…
Can Fin is rare gem with PSU tag, constantly performing in tough environment.
Balancing the growth and risk management. Going ahead 30% growth target is possible to materialize.
Can Fin Homes is a nice stock to invest.Good Share holding pattern.
EQAXScore is 74, which is decent & Exp. EQAXScore is 79.Turnover Rating is 100,SHP rating is 90,Dividend Yield Rating is 58,hence its Confidence Rating is 85 out of 100.
Nice stock.
I have been following the expansion of Can Fin Homes, and noticed an interesting trend, which shows the management focus on loan book growth, while maintaining low costs.
Over the last 10 - 12 months, CanFin has slowed branch expansion (which may not be a bad thing to consolidate after rapid branch expansion over last 3 years), and has gone Repco Homes way of opening satellite centres. Since June last year, they have opened 21 satellite offices and 8 branches. Comparing March 14 vs March 15, the average loan per branch has already increased to 77 crore vs 70 crore (was 50 crore in FY12). Not all gains currently can be attributed to this strategy, but if it works it will help increase topline and bottomline significantly.
Satellite office approach allows the company to penetrate deeper around an existing branch. A typical satellite office consists of one (or two) employees and basic technology connectivity. On attaining size, this office may be converted into a full fledged branch. So Nehru Place in Delhi would be the main branch, and they have opened a satellite office in Ghaziabad which has just 1 employee, where the collection of documents would be done and final sanction, approval etc would be done in Nehru Place. Similarly Jaipur has a main branch in the city - Hawa Sarak and a satellite office in the outskirts - Mansarovar.
It is mentioned in the rights issue letter of offer of Sep 2014 when there were 3 satellite offices, that “the company intends to deepen penetration by setting up satellite offices in adjoining areas where this is increased business potential. We believe this would enable us to leverage our experience in these regions, and also generate greater brand awareness and word-of-mouth referrals”
“We plan to expand and widen our geographic footprint as part of strategy to grow our loan portfolio. We have a three-pronged strategy towards branch expansion – (i) deepening our penetration in geographies where we already have our presence, (ii) expanding our operations to newer, attractive regions previously untapped by us and (iii) setting up satellite offices to achieve cost efficiencies. Backed by our familiarity and localised experience, we expect to grow our business by tapping into opportunities in these regions.”
Hitesh’s Comment is very insightful and fwd looking for all HFC, i.e with DTL provisions being same in FY 16, we can see like to like comparison in all Quarterly results of FY 16, so bottom line ( PAT) can see an increase of 35 - 40 %.
FY 15 BV is 290, so FY 16 BV will be closer to 345, so P/B between 2.5 to 3 (for fast growing loan book @35 % and NILNPA, increasing NIMs), looks reasonable expectation from Mr. M, so price target can be in a range of 870 to 1050 IMHO.
Disc: invested, views are biased as usual
Most important line from annual report 2014-15
Provision of loans is required to be maintained as per NHB guidelines on prudential norms to the extent of 758.38 lakh (Previous year 658.65 lakh) against which the company, by way of prudence and abundant caution has maintained cumulative provision of 1435.19 lakh(Previous year 1210.42 lakh).
other point from AR :
WHAT IS THE COMPANY’S OUTLOOK FOR 2015-16?
Our ‘Vision 2020’ plan envisages a loan book of 35,000 crore with a CAGR of 30%. For now, we expect to grow our loan book to about 11,000 crore during 2015-16 through the existing branch network and with the addition of 23 new branches/ satellite offices (taking the total number to 140). We have plans of doubling our non-housing loan portfolio to 2,000 crore. Our thrust will be on further reduction in the cost of borrowings, continued to focus on maintaining our good asset quality, improving operating efficiency and margins. We believe that the combination of these initiatives will lead our company into another good performance in 2015-16.
Company proposes to increase the share of CPs in borrowing mix during the year to reduce cost of funds further and secure credit rating from one more agency this year.
**
(Cp cost of funds is 100 basis points lower than conv. funds
)**
(A)Your Company has started mobilising funds through commercial paper (CP) for the first time since July 2014. The outstandings at the end of the March 2015 was H975 crore. The effective cost of funds was 8.49% p.a…
(B) The aggregate bank borrowings (term loans plus overdraft) at the end of the financial year stood at C2307.12 crore (previous year C2525.79 crore); the overall cost of borrowings was 10.18% p.a. as on 31/03/15 while the incremental borrowing cost was 10.07% p.a. for 2014-15
New Look Annual report…rock solid FY2015…Looking forward to a blockbuster FY2016…
http://canfinhomes.com/Downloads/150615162827_Annual%20Report%202014-15.pdf
Thanks for sharing this Naman.Gives confidence that Canfin is certainly among the best managed NBFC of the country (lowest NPA). I have a query on GTL tas - is this a onetime annual tax or quarterly ?
Any opinion on fresh investments in the stock - given that it has run up significantly in last year.
Disclaimer:Core investment.
Hi,
I am staying in Bangalore and want to attend AGM. Can someone please guide procedure to attend AGM
Hi Ramanhp,
NHB has permitted HFCs to adjust the Deferred Tax Liability in a phased manner, over a period of three years in the ratio of 25:25:50 starting from FY 2014-15. Accordingly the Company has to adjust the DTL of 75 crores in three years. The Company has transferred 18.50 crore in the current year from the General Reserve to DTL on the Special Reserve outstanding as on 31/03/14, and provisions for it in the quarterly reports. Markets should now have factored in these till FY17 and on a like to like basis from last year, the growth of FY16 EPS should look good as the comparison for FY15 would also show DTL provision.
Regarding whether you should buy at current price, it is important to understand the opportunity better so you should go through this thread in detail and do further research. There are major tailwinds that support the growth of HFCs – underpentration (10% mortgage to GDP), 20 mn homes to be built over next 5 years, low NPA, high security collateral, reducing interest rates etc.
Regarding CanFin Homes in particular, the management has laid out a clear roadmap for rapid growth with focus on increasing NIMs, ROA and ROE.
Canfin has shown consistent growth and probably has been the fastest growing HFC during last 6-8 quarters, and is on a growth path of 30%+ for the next few years. What I find really interesting is that there is limited FII/ DII participation in the stock at <1%, so once this comes in the radar of FIIs, the stock could see further re-rating. I think in FY16 the company could do ~350 per share book value and as mentioned in the annual report and company’s “Vision 2020”, it is likely to grow at 30% over next few years (and given the rights issue of 275 crore is adequately capitalised for next couple of years). So at less than 2 times book value, Can fin may be attractive for the next couple of years.
A large part of this growth has been driven by the MD C Illango who joined Can Fin in 2012. A big risk specific to Can Fin is C. Illango’s term ending, which was extended till June end 2015, and should be hopefully further extended (LINK).He is 58 years old, and will also come up for retirement soon, so that remains a big risk. Does anyone have any updates on this?
There are other risks which apply to all HFCs such as downturn in real estate market resulting in high NPAs, increased competition with focus of banks on retail housing finance.
Overall I remain bullish and continue to remain invested in HFC sector – CanFin Homes, LIC, Gruh, Repco
makes sense to look at profit growth on a DTL adjusted basis (i.e., excluding DTL charges) as these are one off charges amortized over three years. In that context, profits can grow at 25%-30% for many years if they achieve their loan targets without any commensurate compromise on asset quality. The cushion towards NIMs from increased proportion of non-housing loans (currently very low compared to other HFCs such as Repco) is an added benefit.
To put in context, if they do get to 35,000 cr in loans by FY21 and assuming an RoA of 1.5%-1.8% we are talking about potential PAT of 525 cr - 620 cr. That means that at the upper end in 5 years this company will do the same profit Dewan Housing did this year. Unlike Dewan which trades at a somewhat lower multiple, Canfin has the potential to trade at a premium given its good parentage. And probably one more equity dilution along the way.
So this is a long term scalable story. Risk is everybody seems to be getting into housing and LAP so potential for oversupply and deterioration of spreads/standards for the industry that could impact all players.
Disc: invested.
How do I apply to attend AGM?
Anyone has any idea on when the allocated rights shares will be credited to our Holdings?
