Canfin homes ltd


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(Bheeshma Sanghani, PhD) #1541

Not an expert on financials. Knowledge is limited. However, was looking at canfin financials on screener and trying to value it since consensus view is that post all the beating there may be scope of an opportunity in this space. So purely from valuation pov , I would assign it a weighted p/b valuation of 3.5. I think its at 3.4 or thereabouts. Logic is based on some probabilities i have assigned - purely based on gut feel & tweaking them will change the valuations. Personally, i would take the mean RONW and valuations are not looking good for me from that pov but thats only because i dont have any special sectoral insight that is available to those who have been following can fin closely and are savvy with the financials. I assume canfin can do more than its historical average but i dont know whether i am right or wrong so average works for me. At the historical average of 16.7% , the value is 2.8 times p/b so there is scope for further pressure.

ROANW ( 2007 - 2018 ) Value A Price to Book B Probability A X B
AVERAGE 16.7% 2.8 40% 1.12
MEDIAN 14.9% 2 40% 0.8
HIGHEST (2018 ) 24.90% 14 10% 1.4
LOWEST (2012 ) 13.30% 1.42 10% 0.142
Weighted P/B 3.462

The dataset for the above calculations is as under

ITEM Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18
A Share Capital 20 20 20 20 20 20 20 20 26 26 26 26
B Reserves 177 199 226 254 290 327 371 431 744 851 1,049 1,319
A+B = NW 197 219 246 274 310 347 391 451 770 877 1075 1345
PAT 30.11 28.4 31.53 39.19 42.01 43.76 54.12 75.71 86.24 157.11 235.26 301.77
ROANW 15.3% 13.7% 13.6% 15.1% 14.4% 13.3% 14.7% 18.0% 14.1% 19.1% 24.1% 24.9%

Do share your thoughts on the valuation piece


(Rohit) #1542

Don’t you think we can ignore the highest price to book value (2018) in calculation. Though the probability is taken as 10% only , still no. is v high compared to Average, Median and lowest no,s (14 >> 2.8 , 2 ,1.142). Due to which it comprises of 40% weight age in calculated weighted P/B value. I think you should ignore it in calculation to get a better picture. if we ignore it and consider only Average , median and lowest , it may come something between 2.5-3. Though this may not look the right method , but v high value in 2018 may not give a conservative figure and do not seems to have enough margin of safety. But as you said Price to book value of 2.8 around gives a good margin of safety

(Bheeshma Sanghani, PhD) #1543

Yes, in the past 12 years, 2/3rd of the time the returns have been less than the average. So even the average is up for debate as not being representative. Across the financial space, a very large number of cos are doing an roe of less than 15% and those that are doing more should be viewed either as having a differentiated customer base and business model or lack of provisioning discipline

(Yogesh Sane) #1544

Company is planning to raise 1000 cr this year and one of the objective of fund raising is to improve leverage ratio. That mean at least part of this 1000 cr is safety capital and not growth capital. In fact looking at current ROE (25%) they are self funded for current growth rate so they may not need a large growth capital. I wouldn’t be surprised if large part of this new capital just sits on balance sheet as safety capital. In this context, ROE can average about 18% for next 5 years. Looking another way, ROA can average about 1.8 to 2% and leverage will be around 9-10 giving ROE of 18%.

(Akansha17) #1545

Mutual Fund holding of Can Fin Homes Ltd. has shown a decrease in the month of May’18

Source : Stocks held by Mutual Funds | Can-Fin-Homes-Ltd | RupeeVest

(Ronak) #1546


Valuation is a subject which baffles me a lot. Here is my attempt to understand the valuations - what drives them

  1. Valuation journey of the key HFC’s from 2012. (Data Sourced from Ace Equity)

Figures for FY 18 are Adjusted P/B, while ealier years are Price to Book as they are sourced from Ace Equity


  1. My learning.

So Net Net Conclusions

  1. Price Growth is the function of Book Value Growth and Valuation Multiple

  2. In most cases - Price growth will replicate the BV growth. Matured companies like HDFC is a great e.g. where there are no re-rating triggers and Valuation multiple is reasonably high. LIC Hsg fin - which is poorly managed company - also saw a similar trend. While the absolute multiple given to these companies are lower - their price grow at the same pace as their BV growth.

  3. Good Management and Asset Quality will result in higher absolute Multiple (HDFC, Canfin, Gruh)

  4. Big delta can be generated when there is fast growth backed by improving asset quality and return ratios (Canfin)

All of us should dwell a bit more on the subject and try to get more on the possible learnings we can draw from the above study. Looking forward to all your comments.

Happy investing

(Rohit) #1547

How did you get the price to calculate the price to book value. I am trying to do the same thing for calculating PE values but how can I get the price of stock (DAILY , MONTHLY OR AVG prices). Is their any source or website from where we can download these historical prices data of last few years ?

(Bheeshma Sanghani, PhD) #1548

Not sure if this is what you are looking for - is a good source to look at historical p/e, p/b, ev/ebitda etc but you cant download anything. also provides an export to excel tool, where historical data can be exported to excel for a co and historical p/e values are part of the data.

If you find an alternative free source do share as its useful to look at the historical trends.


(Ronak) #1549


My questionnaire for the AGM Meeting

  1. Canfin has predominantly been a South based HFC - with Karnataka (33%) and Tamil Nadu (15%) being largest contributors. We have also seen it’s growth getting impacted due to over dependence in these regions. Do we have a conscious strategy in place to grow more into Non-South based regions. If yes, could you give us a broad outline of the growth plan over the next 2 - 3 years.

  2. Canfin has always maintained very high asset quality and it’s stance has been not to compromise quality for growth. Hence, it’s exposure to Salaried segment is very high close to 75%. But don’t you think that this market is highly saturated. If yes, do we have a conscious strategy to grow our Non-Salaried book. Also, underwriting skills needed for Non-salaried segment would be different. What is our stance on this aspect. Have we taken steps to augment this segment in our portfolio. [ Training to credit evaluation team to assess cash flows of Non salaried individuals etc.]

  3. Many of the large HFC’s have actually grown faster due to their builder tie-ups. [ The HFC’s would have given loan to builders for construction of buildings and would have pre-approved these projects for Home loan processing. Hence, every homebuyer is routed by the builder to the HFC for buying the house in the building. This creates a win win situation - builder gets construction finance + faster sales as flats in his building a pre-approved and hence lesser time spent in processing. HFC’s gets to rollover his loan from builder to Home buyer, as the HFC will fund the home buyer, who in turn pays to the builder, who in turn repays it to the HFC. ]
    Canfin has a very low exposure to Builder finance. What is our stance on this segment. Would we still avoid this segment.

  4. The primary concern of the Karnataka market is the high number of Non Rera registered projects which are stuck.
    Could you throw some light on ground situation
    a. What will happen to the projects which are no registered? What recourse do the builders have to sell their unsold inventory?

b. Do you see a trend where Construction Finance segment witness a sharp rise in NPA’s as these builders begin to default?

c. By when do we see the ground situation change? There is an article which says the sales in Bengaluru have grown sharply?

d. Concerns about IT sector are allaying. TCS reported good numbers and have guided for good growth. Will this see a revival in demand for Housing in our markets and hence can we guide for higher growth than projected?

  1. On the cost of borrowing.
    a. What is our outlook on Int. Rates. What is our projection of the Cost of borrowing for FY 19 & FY 20

b. How do we arrive at the yields we must charge. Do we have a NIM / Spread target in mind while fixing them. If so, what is our targeted NIM / Spread range we aim at.

c. How do we account for competition when setting our yields? Since our yields are marginally higher than the competition, what margin above the competition would we be comfortable with. For e.g. SBI Home loans for < 30 Lk is 8.50% Vs Our offering at 8.95% (45 bps higher)

(Ar) #1550

Very helpful ronak. Just wanted to point out that hdfc would have actually seen a derating for their core mortgage business if you exclude the value of subs from market cap

If I just take the value of their stake in hdfc bank, hdfc standard life and gruh finance and removie it from market cap after applying 20% holdco discount (assuming market is also applying this when valuing hdfc) and divide by the book value per share you have for fy18 i get a 3x p/b multiple vs 5x that you have in fy13. In Fy13 while these subs would have existed I am assuming they would have been a much smaller part of overall sotp vs almost 50% now (standard life would not be getting valued back them and gruh and hdfc bank’s value has grown faster than hdfc over these years so they are bigger part of sotp now vs fy13)

Not taking into account value of hdfc amc which would make core p/b of hdfc look even lower. Guess this derating is because their subs have grown faster and generated more value and hdfc itself has become more of a holding co.

Let me know if I made any error! Thx

(barathmukhi) #1551

Does anybody have this report from ICRA on HFCs?


Quite a bad set of results in my opinion. NPA has increased. NIMs have decreased. Approvals & Disbursements are down compared to previous quarter and almost same YoY. Yields have fallen even after increase in lending rates.

(abhishkjain2626) #1553

When the behemoth HDFC can grow its topline by northwards of 18%, this small company is hardly having 10% topline growth with PBT increasing by a measly 4% YOY. Seems it has reached a stage where the growth would be flat/stumbling just like its PSU peer LICHF.

Disc. Exited


More than the slow growth, what bothers me more is the gradual but steady detoriation in asset quality.

(sambandham82) #1555

I have a basic doubt.

Does one need to worry about asset quality of a home finance company in india (i presume the case of Lehmann Brothers was different) as most of the the loan amount are given to retailers and can be recovered easily and even in case of default, the property can be monetized.

Can someone please clarify ?

(Ronak) #1556


Absolutely, One needs to be worried about asset quality and this holds true for all forms of financing.
Think of a simple e.g. -
Value of the House - Rs 20 Lk
Loan to Value Ratio (LTV) - 70%
Loan Amount - 14 Lk
Rate of Int - 10% p.a.

Now, suppose you default - I will have to recover my 14 Lk + Unpaid int. by selling your house. I will think of the following questions

  1. I hope the value of the house atleast Rs 20 Lakhs as I originally valued. What if the property price has fallen? Will I be able to recover my dues?
  2. Selling property is not an easy affair. it may take months / years to sell it. I will have to account for the int. on the capital for the entire period till the property is disposed off + legal charges.
  3. Is selling property my forte? I am a home loan financier - selling property is a difficult task. Should I be focusing on my business or should I spend time selling these properties?
  4. I will have to set up a special recovery team for doing this. This involves additional cost

I guess, when you wonder about these things - you will realise the golden words - “PRECAUTION IS BETTER THAN CURE” in other words - I should have been careful about lending in the first place.

This is a theoritical e.g.
Now lets see how the market reacted to the companies showing worsening asset quality - Case in point Repco Home

Price declined by 5% p.a. inspite of the Loan book growing @ 18%, due to worsening asset quality

(rajsuccess) #1557

Hi Yogesh, @Yogesh_s, do you have a positive view on changing given their dismal performance in the last quarter? All this growth plan and stake sale will lead to strengthen the company in long term…

(Yogesh Sane) #1558

Performance is bad and market reaction was negative as well. It indicates that all bad news is not yet priced in. Once a stock goes out of favor, it does not come back in favor so quickly. Company will have to show couple of quarters of good numbers before it will attract investor’s fancy.

RERA has impacted small builders that build small 20-30 apartment buildings. Customer who buy these apartments are Canfin’s customers. So turnaround probably is not around the corner. Valuations look OK but investors may have to sit this one out for a long time in case turnaround take a while.

Market may in the interim value this company along the lines of LIC housing (although LIC is much bigger and can afford to lever up). That can take price to book as low as 2 or 2.5. Rising interest rates are also not helping.

(jainnitinp) #1559