This is my question to Hitesh/Jatin/fellow boarders who are gung-ho on Can fin homes… Please clarify me on why IBHFL is not a better bet than CAN Fin homes at cmp … This is something which i am unable to understand from long time … Is it because of your comfort or preference towards few specific stocks that is prompting you to look at Can fin …
IBHFL vs Can fin
Dividend Yield at cmp : 12% vs 3%
ROE : 25 % vs 15%
PE Fy14E : 4.5 : 4.63
Positives:
Long, proven and consistent track record of the management and is not dependent on a specifc person i.e. c.Ilango. Much bigger in Size than CAN Fin homes. Third largest HFC in India. Most likely to get AAA+ rating sooner. Expected growth of 20-25% for the next three years.
Negatives:
Agree that Can fin is trading much below the book value where as IBHFL is trading around 1.2 times book value. Can fin has nil net NPA where as IBHFL has 0.48 NET NPA ( though very small in terms of its size ). Can fin is churning out much better growth in loan disbursements due to its smaller base. Again no guarantee on its sustainability here given its dependence on the New management and its PSU nature. Avg ticket size is lower and is catering to mostly non-salaried persons unlike IBHFL.
I think there are corporate governance issues with respect to IBHFL. A year back or so one group of investor had alleged IBHFL of misgovernance. I donot know what happened later.
No further developments has come to my notice. Similar allegations were also heard against DHFL. Still Rakesh Junjhanawala bought DHFL.
Agree that the corporate governance of IBHFL is not of top class. But is certainly better than CAN FIN and DHFL. Very consistent track record and wealth creation history. Indiabulls started of as a single company in 2000 and created wealth by de-merging business into separate and independent entities later. Veritas has alleged RCOM also of its corportae governance but stock has become 2.5 times since then … Infact they have given sell rating with a target of 13 rs per share. Don’t think that RJ’s entry has changed the fundamentals of DHFL. It has just given the much needed technical impetus to it. After all there will be a time to each and every script that it attains its deserved price.
Agree that the corporate governance of IBHFL is not of top class. But is certainly better than CAN FIN and DHFL. Very consistent track record and wealth creation history. Indiabulls started of as a single company in 2000 and created wealth by de-merging business into separate and independent entities later. Veritas has alleged RCOM also of its corportae governance but stock has become 2.5 times since then … Infact they have given sell rating with a target of 13 rs per share. Don’t think that RJ’s entry has changed the fundamentals of DHFL. It has just given the much needed technical impetus to it. After all there will be a time to each and every script that it attains its deserved price.
Agree that the corporate governance of IBHFL is not of top class. But is certainly better than CAN FIN and DHFL. Very consistent track record and wealth creation history. Indiabulls started of as a single company in 2000 and created wealth by de-merging business into separate and independent entities later. Veritas has alleged RCOM also of its corportae governance but stock has become 2.5 times since then … Infact they have given sell rating with a target of 13 rs per share. Don’t think that RJ’s entry has changed the fundamentals of DHFL. It has just given the much needed technical impetus to it. After all there will be a time to each and every script that it attains its deserved price.
Management quality perception problem is not limited IBHFl , but to whole group companies …Ibul sec and india bull retail all are trading at high div yield. promoter are quite close to politicians ( rajasthan ex cm particularly) …i dont know thats a good point or bad.
Agree that Promoters are quite close to politicians and that is the reason why they were able to grow exponentially with in a very short time of 12-13 years. But this should not be a show stopper for an investor as long as the business is performing and the outlook is looking great with visibility in the earnings. Amararaja promoters, Heritage foods promoters , Adani group promoters , JSW promoters are also closely/directly related to politics and all of these have been multibaggers ( not Adani group may be ). Markets have the knack of keeping cheap shares cheaper for quite a long time before bursting at once. It needs some kind of fillip like the one that DHFL has got it or Atul auto very recently. As per peter lynch, market price should follow the earnings in the long-term and hoping that the investors fraternity will make this script attain its reasonable valuation.
Its bad decision to take position based only on cheapness alone. Even uninterrupted dividend & yield is subject to abuse. When you have different options esp in housing finance space, why pick on IBHF ? we have DHFC , LICHF , GICHF and Can Fin
I am not so sure, I bought small qty of DHFC after hearing news about RJ and stock looked damn cheap . Previously i got burned where the promoter doing intra company transaction (Looks like this is what happens at IBHFC), so my stomach boils at thought of IBHFC , but feel comfortable with PSU tags (though its kinds of personal feeling). When in doubt , Generally i diversify.
To many investors management quality is as important as the company performance. And judging management quality is subjective. Suppose there are 2 companiesAandB.Ahas a political linkage and lets assume that everything else is similar forAandB. Now some people may look at it as a positive sign forAas they may get benefit out of political connections (fast approvals. etc) . While others may be skeptical for that very reason because if management can flout some rules because of their political linkage what’s stopping them to not do this to minority shareholders. There are always many sides to a story and your stand depends on which side you choose to believe.
To your question of why other companies are not being discussed, I would like to mention that no one is stopping you to start a thread on the company you believe in. If other valuepickrs find it interesting and aligned to their investment philosophy they may chip in with their views. And that’s how a discussion starts I presume. Admin has nicely explained that here
Thanks for your suggestions and inputs. I believe i have taken the discussion off the topic here. Definitely we can discuss the merits of the investment in IBHFL in a separate thread which is already existing ( no need to start one ). My intention of starting the discussion in this thread is to compare the investment rationale in CAN fin vs-a-vis IBHFL. I have vested interest in both of these but am planning to increase my allocation to either of these IBHFL/Can fin looking at the attractiveness in their price. So wanted to know the opinion of the fellow boarders to choose one upon these.
I’m a novice to financials investing. Can you please help clarify the below doubt of mine?
How can all the equity investors in a financial make more than the ROE? Can they?
From what I understand, upper bound(RoE) = (100/min_CAR)*NIM
For CanFin, upper bound of ROE = (100/12)*3.5 = 29.1%; So for an investor who is looking for at-least 30%/year over the long term, he would sell the moment the Price reaches book value.
Is the above math correct? Gruh is currently trading at more than 5 times book. Is there something I’m missing in this simplified math?
What about the Fee income? Income that does not depend on your book size/ asset base - commission on sale of MF/Insurance, Investment Banking income etc
Its pretty interesting and surprising to see the liberal dividend being paid out by India Bulls Housing Finance…its trading at 10% dividend yield!! Interestingly its not a small company…market cap is of about 8,000! This will be the second year where they are going to pay out Rs 20 as dividend. So interesting for sure.
High dividend Yields are sometime value trap esp when you have questionable management. (Look at Ganesh Jewellery).
Regards
Vishnu
Hi Neerav,
Thanks for your suggestions and inputs. I believe i have taken the discussion off the topic here. Definitely we can discuss the merits of the investment in IBHFL in a separate thread which is already existing ( no need to start one ). My intention of starting the discussion in this thread is to compare the investment rationale in CAN fin vs-a-vis IBHFL. I have vested interest in both of these but am planning to increase my allocation to either of these IBHFL/Can fin looking at the attractiveness in their price. So wanted to know the opinion of the fellow boarders to choose one upon these.
I’m just saying that its interesting and worth looking into. And perhaps also question our hypothesis on Canfin as the nos of Indiabulls are better yet its cheaper.
No doubt there are lots of question mark and skepticism on the way the India bull group functions…but all said and done, they do have actual presence and business in the actual market. Indiabull group is one of the leaders when it comes to financing in some key markets.
Also, there is a huge difference between a Ganesh Jewellery and a India Bulls. I have cautioned on Ganesh Jewellery earlier…while on Indiabull I don’t think it can vanish overnight or something.
Regards,
Ayush
PS: Have never invested in any Indiabull group co and remain skeptical on their nos.
Yes. market’s perception towards Indiabulls group is not sanguine. It can be attributed to their political relations but as you said it is clearly visible that the Business of the company is growing. ROE has crossed 25%. NPA levels are in control.
Look at the tax numbers and dividend they are distributing. Look at their retail arms/branches all over the country. Certainly, they have made their name felt. It is one of those few companies with consistent track record barring 2009 and 2010. It was trading at 9-10 PE multiples before to the RBI restrictions on the short-term borrowings. Later we all know what happened with the entire Finance sector. Remember, Yes bank itself is trading at less than 7 FY14 E. Market was valuing DHFC also very cheapely until RJ came into the picture. As you said it is a 7000-8000 cr mcap company churning out dividends of around 1000 cr an year. How can we say that the numbers are fudged ?
Having said all this, currently the stock is downtrend for some unknown reasons and csl of 170 rs should be kept for any longs. Below this it will lead to major breakdown which will happen only if there is something seriously wrong with the company which is not open to the investors.
I still hold my conviction on this mis priced bet and yet doing all the right things in the tough environment. 170 rs is my CSL for long-term investment.
Indiabulls is more riskier, imagine a serious downtrend in the housing, already , housing is so inflated, especially in last 2-3 years, a Rs 40 lac apartment is worth nearly twice now in Bangalore.
Having said that, I have my own doubts about Canfin’s success,I 1st noticed it about 3 years back and was not convinced, so forgot,
1)Why a company that started 26 years back was lazy until 2 years back and what has changed now and how long will it continue?
2)Though they grew well in last 2 years, why its PE contracted?
3)Did they get aggressive because they got more lending from NHB in last 1-2 years? can it continue to get low cost funds from NHB to match the 35% disbursal target?
4)This is most important question, can they compete with SBI/AXIS/HDFC/ICICI/LICHF??
I spoke to my few friends in Bangalore, nobody even shortlisted Canfin when they took home loan recently, and consensus was, public sector banks still have same old procedures and delays, poor customer service, very poor communication (email/24 hrs customer support), mind you these guys that I spoke to work for Giant Multinational and dont even think of defaulting.
5)Does canfin work with Builders and Developers? Most of my friends went to certain housing finance companies for loan because builder /developer had already tied up with that bank and it was easy / convenient.
6)Why has NIM decreased in last few quarters? though the scale of the loan book has gone up?
