The purchase date of the additional 10 shares will be the same as original purchase date.
CFH is the top holding in my portfolio and I wanted to take a stock of current situation. Following are notes from my research (Compiled from Q4FY17 Con Call, Investor Presentation and Annual Report) -
Annual Report -
http://www.canfinhomes.com/News/170606134047_Annual%20Report%202016-17.pdf
FY17 Investor presentation -
http://www.canfinhomes.com/News/170606134047_Annual%20Report%202016-17.pdf
Tailwinds
Everybody is talking about tailwinds in housing sector and HFCs. I wanted to spend some time understanding what exactly are these tailwinds. Following is what I have found -
CLSS under PMAY
The government is offering various Credit Linked Subsidy Schemes (CLSS) under Pradhan Mantri Awas Yojana (PMAY). The income eligibility under these schemes is 18L per annum and I suppose very large part of Indian households are eligible. There are three categories in the scheme - EWS & LIG (Economically Weaker Section & Low Income Group, Income upto 6L), MIG - I (Middle Income Group - I, Income between 6-12L) and MIG - II (Income between 12-18L). For EWG & LIG, subsidy is provided at 6.5% for first 6L loan. For MIG-I and MIG-II, the subsidy rate are 4% for first 9L loan and 3% for 12L loan. There are rules about carpet area as well. With these subsidies, the effective pre-tax incentive interest rate comes to about 7%. If you add tax incentive, the rates are even lower. There has never been more favourable times to get home loans than current time. This shall lead to increase in demand in affordable housing segment.
Following link and snapshots provide more details -
EWS & LIG
MIG-I & MIG-II
Supply Creation
- GoI estimates that there is shortage of 60mn affordable homes - 20mn in urban areas and 40mn in rural areas. These estimates by themselves do not mean much I suppose.
- Affordable Housing segment has been granted infrastructure status. This entails some tax breaks etc. I suppose. One thing CFH AR mentions is - one can raise ECB upto $750Mn under automatic route.
- RERA is expected to make the real estate sector transparent. Smart Cities and Housing for All by 2022 are also said to be adding to the supply creation.
Cost of Funds
- Cost of funds from various sources for CFH is described in table below -
After PMAY, it is not clear to me how NHB refinance rates would be. - The division of funds in current year is provided below -
- Again from CFH AR, RBI has reduced risk weights on bank lending to AAA rated HFCs to 20% from 100% enabling banks to lower the cost of funding to HFCs.
- IRDA has exempted investments in AAA rated HFCs from sectoral caps thereby enabling insurance companies to freely invest in HFC debt instruments.
- The company has raised ordinary resolution to increase the borrowing limit from 16,000Cr to 20,000Cr. They have raised this limit in every AGM since last 3 years at least.
- The company also has raised resolution to raise NCDs worth 6000Cr on private placement basis. The rate of interest offered on these NCDs remains a key moniterable.
The details of past NCDs are provided below -
- The cost of funds via CP route is getting cheaper but CP funds are short term funds.
Expansion plans
- The company had 170 offices in FY17 - 124 branches, 36 satellite offices and 10 Affordable Housing Loan Centres (AHLC). The company plans to open 22 offices - 12 branches and 10 satellite offices in FY18. It also plans to open 20 more AHLCs.
- On concern that, non-salaried (self employed) loan book growing faster than salaried, management said if India is developing this way, then we can not ignore non-salaried class. Also if risk of underwriting is lower to non-salaried person is lower than that to salaried person, management would gladly take that. The RoI offered to self employed class is 25 basis points more.
- The average yield on housing loans is close to 10% and that on non-housing loans is close to 12%. So far, if existing customer wanted lower rate, he would have to ask for it and it can be availed upon payment of conversion fee. CFH has started new policy of interest rate reset every year for existing loans.
Miscellaneous
- The company used services of 685 Direct Selling Agents (DSAs) in FY17 and that formed 54% of the sanctions.
- The geographical breakup of revenue is - South India - 75%, North India - 25%. Amongst south Indian states - Karnataka contributes 33%, Telangana, Andhra Pradesh and Tamil Nadu contribute 17% each and Kerala contributes 2.5%. (The figures don’t add up!).
- As per CAPITAL MARKET may 22 issue, the number of HFCs increased from 55 in FY14 to 70 in FY16. Around 80 licenses are pending with NHB.
Wishlist
- The deposits only contribute 150Cr to the company’s funds. Its about time, company expanded this low cost fund base by some good advertising/marketing campaign.
- 54% of sanctions via DSAs is actually a lot. About time, company started advertising campaign for its loan products and shore up in-house direct sales team.
Disc - CFH forms 20%+ of my portfolio at average price of 873 and hence my views are biased. This is not a buy or sell recommendation. Investors are kindly advised to do their own due diligence before investing.
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In the recent announcement from RBI (quoted below), does the second point help in improving the profits as they have set aside lesser amount for standard assets provisioning?
*“The RBI has reduced the risk weightage on home loans above Rs 75 lakhs to 50% from earlier 75% and in addition to this, the standard asset provisioning on home loans has been reduced to 25 bps from 40 bps.”
Ok, I did a quick calculation based on the FY17 provision numbers from the annual report given below. Assuming that the standard assets increase in value from 13285 Crores to 17000 Crores roughly, they might have to pay around 4.5 to 5.5 Crores less as provisions compared to what it would have been otherwise. A small number, but still good news as it increases the EPS by additional 2 rupees per share.
It would certainly help housing finance companies. Check this Indiabulls Housing Finance interview -
They won’t need to provide for standard assets in FY18. I think the change is retrospective. Larger players will be most benefited by this.
I guess they still have to provide for standard assets but at a lower rate
Does the below intimation mean they are considering bonus issue of shares? Or does it refer to raising capital via issue of shares (QIP etc)?
“Further to the prior intimation of the Board Meeting CFHRO SE CS LODR 068/2017 dt. 02/06/2017, we would like to bring to your notice that at the Board meeting which is scheduled to be held on Friday, June 23, 2017, the Board will discuss and consider inter-alia, the proposal for further issue of shares”
the shares are being split !
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Share split was the original announcement. Yesterday there was another intimation where they have mentioned “in addition to earlier announcement, they will also discuss further issue of shares”
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raising fresh equity capital at such high P/B is not bad after all. Lesser dilution.
The issuance of new shares may be a part of the share split exercise. When shares are split, new shares need to be created with new security numbers (ISIN). It is possible that Canfin is talking about these issuances.
Isn’t it part of the stock split exercise itself?
CanFin appears to be issuing fresh shares apart from splitting them. http://www.thehindubusinessline.com/markets/stock-markets/can-fin-homes-further-issue-stock-split-in-focus/article9733603.ece
But, why? After the reduction in risk weightage of home loans, CanFin has a healthy Capital Adequacy Ratio.
sorry for the ignorance, but what does issuing fresh shares really mean ? Is it equity dilution or issuing shares on a preferential basis etc ? I never understood the affects of stock splitting/issuing bonus shares etc. Can you help?
Perhaps more institutions want to get into affordable housing theme. You
are right that they dont need cash now and the MD also had mentioned few
months ago that they dont need capital till later part of 2018.
- Stock split with ratio of 5:1
- Rights issue to raise upto Rs. 1000 Crores. (Rights issue is better than QIP I guess, but wonder if Canara bank will subscribe to it as they recently sold stake to GIC to raise capital).
What does rights issue mean ? do individual share holders too get preferential stocks?
Individual shareholders can opt to subscribe to rights issue. Rights issue normally comes at discount to current market price in most cases but need to wait for the announcement from company. Also need to wait for the record date which company fix for the rights issue. if its backdated then individuals buying in future cant subscribe.
Canara bank also announced stock split sometime in the past but the record date never came… Hopefully same will not be the case with canfin