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?
Yesterday I checked out a Home Finance Expo at Chennai. Was totally not interested in home loans but went to see to get a sense of what the ground reality was.
1). Stalls of ICICI, Axis, IOB, LIC HF, HDFC, PNB HF, SBI and Standard Charted was present. No GRUH, CAN Fin, IB HF or REPCO HF.
2). Decent crowd. Anyway in the south people are always interested in “investing” in plots/house.
3). Actually loan disbursal can’t be gauged just by visiting and observing. However there seemed to be high crowd at HDFC stall.
4). Competition is high. Almost all of them offer at similar interest rate, waiver of processing fee, fast processing, less documentation, etc. It would be interesting to know how home buyers zero in on a housing loan.
Was intrigued so asked the IOB fellow why I should go for them when others offer almost the same rate.
“Because we are a PSU.”
“Then why not LIC HF?”
“Because they are not a Bank.”
“How does it matter to me if they are a NBFC?”
No answer.
Sorry if this post is totally irrelevant and for hijacking this thread.
Great for the scuttlebutt you have done. Very few people do scuttlebutt . Few points
Average ticket size of DHFC (which I follow ) and IBHFC around 10- 15 Lakhs. you will not find homes around these prices in Bangalore or any other Tier 1 cities.
Competition is immaterial for Banks and NBFCs. i.e They make money despite of competition due to Switching Costs (read Pat Dorsey’s book)
When you invest in companies like this , you have to bank on Rural Growth and resulting expansion in Tier 3 and Tier2 cities
Indians are irrational when it comes to their House. So no matter what happens to real estate price, they are not going to sell it. i.e NPA levels will be too less and it will remain even Real Estate goes bad (Except when it goes crazy)
I’m invested in LIC HF and HDFC, so I had to check out how my businesses were faring. Though I know it is tough to observe and draw conclusion (which is a better HF to invest), but I know that I can benefit from people’s craze to buy flat/plot and from borrowed money. So much crowd for just 8 stalls.
I love “scuttlebutting”! I’m invested in a couple of FMCG businesses and I go to retail stores like big bazaar, Reliance Fresh etc to see the brands are selling, how much space it occupies in shelf, see what brand is selling , etc. I know which brand of atta sells more, how much quantity they buy, etc. I just love it to do my own research.
Was going through Canfin web site almost every page. Myself being software engineer found their site seems pretty amateur. Javascript is badly coded (firebug plugin shows source code)
In case they upgrade their web site we may see re-rating for this stock as it is mostly into retail loans.
Vishnu, you are right, huge opportunity in tier 2 cities like Hubli/Nagpur/Mangalore Coimbatore. But why have about 20% of the branches in Bangalore and not change the culture and not compete? They
Lets imagine Bangalore has about 10 lac people who take home loan, lets assume 1 lac of them go to Canfin Homes and avg loan size is 20 lac, that makes the opportunity size for canfinhomes of about Rs 20 K crore loan book!! Just 10% market share only in Bangalore, they are done for next 5 years!!!
It is 26 year old Housing finance company sir, plz remember that, some one rightly mentioned, their website looks so backward. Look at the customers profile in Bangalore (just to focus), mostly IT background, they will look for better customer service and fast hassle free approvals, can it change? Looks like they are improving, my friend in a town called Davangere has taken home loan from Canfin, he sounded satisfied. But the bigger market is waiting in Bangalore…Their parent Bank Canara Bank still trades at about 3.5 PE! In last 4 years no returns in Canara Bank, thats worrying.
I am convinced that Housing Finance is a big opportunity, can Canfin deliver?
I have scheduled a call thisThursdaywith one of the manager that my friend has introduced me, will write here back when I get answers for some of these questions.
Yesterday I checked out a Home Finance Expo at Chennai. Was totally not interested in home loans but went to see to get a sense of what the ground reality was.
1). Stalls of ICICI, Axis, IOB, LIC HF, HDFC, PNB HF, SBI and Standard Charted was present. No GRUH, CAN Fin, IB HF or REPCO HF.
2). Decent crowd. Anyway in the south people are always interested in “investing” in plots/house.
3). Actually loan disbursal can’t be gauged just by visiting and observing. However there seemed to be high crowd at HDFC stall.
4). Competition is high. Almost all of them offer at similar interest rate, waiver of processing fee, fast processing, less documentation, etc. It would be interesting to know how home buyers zero in on a housing loan.
Was intrigued so asked the IOB fellow why I should go for them when others offer almost the same rate.
“Because we are a PSU.”
“Then why not LIC HF?”
“Because they are not a Bank.”
“How does it matter to me if they are a NBFC?”
No answer.
Sorry if this post is totally irrelevant and for hijacking this thread.
@ Mahesh … when it comes to Real-estate slowdown and prices and coming down… i would say that HDFC and LIC are more prone to the risks than IBHF/DHFL. Their avg. ticket size is less compared to these and their focus also changed to tier 2 and tier 3 cities. The problem with CAN-FIN is you can expect short-term returns as it is trading very cheap but it lacks the consistency that is required to remain invested.
To me, the demand and supply levels determine the price for a script in the market. REPCO being a new IPO with low base and high moat it has attracted the investors who crave for some good investment through IPO. Later due to its consistent returns it has become part of their core portfolio for many.
I am sure that you will not get DHFL or IBHF at these prices if they are getting listed newly in the market. I am sure that if Devyani international lists in the market now it would trade at exorbitantly higher valuation than JUBILANT food works.
Some how, in last 1 year , investment in housing loan company has become fancier, you all have convinced me, sure, it is a big opportunity. But finding the right one is a challenge and this forum could do it-Mahesh
Although a small player in the market, its healthy growth, good asset quality and strong parentage make Can Fin Homes a stock worth evaluating.
a. Attractively valued growth business with Canara Bank parentage
b. Present in the retail residential mortgage space in Tier 2 and 3 cities, which are substantially under-penetrated. Selectively adding small builder loans where they are also lending to the retail borrowers. This provides some juice to NIMs
c. All loans are floating rate, so they are able to contractually pass on rate hikes, assuming they have the pricing power
d. Access to competitive financing from Canara Bank and NHB, and within NHB spread cap of 200 bps
e. Adding branches at a robust pace, and this along with loan growth from existing branches, driving loan book growth of over 40%. While the pace of growth could slow, it will likely stay robust
f. Absolute Gross NPAs of 17 crores (0.35%) and zero net NPAs given 100% provisioning. While fast loan book growth needs to show seasoning, the past 2 years of robust growth have not resulted in increased asset quality pressures despite a challenging macro
g. Assuming a 70 crore net profit in FY14, the stock is available at 5x PE and possibly 0.8x P/B. For FY15, the numbers should look better
h. While Can Fin has never diluted since its IPO, given faster growth trajectory, it might need to raise some form of Tier 1/2 capital in the next 12-15 months. This could be an overhang till such time price and instrument has been decided, especially since it trades at a discount to book value
The Company has a detailed presentation updated for December 2013 on its website. Worth checking out.
While Going through annual report of DHFL , I noticed that cost of the funds from NHB is just about 7%. DHFLs avg cost of funds is about 10.5% and its NIM is about 2.7% , I dont know why Canfins NIM is almost close to DHFL though 51% source of fund is from NHB. Is it just because company opened about 40 additional branches in last few quarters??
NIM does not come down due to higher operational expenses related to branch expansion. This higher expense will affect the Cost/Income ratio and the ROA/ROE ratios as net profit comes down.
Its not correct to assume that NHB funds are the cheapest always. They have schemes under which funds are low. Canfin themselves had indicated that this FY the NHB funds were costlier than what they got from Canara Bank.
We also need to see if the company includes fee charges as part of the yield to arrive at the NIM. DHFL if I remember correctly had high proportion of fee income. And they charge higher interest rates as they cater to slightly non-prime segment too. Canfin is almost entirely salaried class low risk segment and they don’t charge different interest rates for different customers.
There is one aspect of Canfin that is not discussed here.
There are numerous small time builders in Bangalore offering apartments in the range of 30 to 50 lacs. This is the segment which has great demand. Apartments ranging from 10 to 30 units. Most of these projects (if not all) are not built as per approval papers. A builder cannot make money if he follows the books, when everybody around him are not. He simply cannot stay in competition.
Banks are very well aware of this. Every bank has its own way of addressing this issue. For example pvt. Banks like ICICI, HDFC would approve the projects if the deviation from original approval papers are less than say 30%
This is where I have personally seen that a canfin or a LICHF or a DHFL is lenient in approving loans. I personally know of 4 to 5 such apartments (deviation more than 60%) and loans being approved by canfin (where no public sector bank or a pvt bank would approve)
With respect to asset quality, I donât know how much of a factor this would be. These apartments (with deviations) may never get demolished/penalized. However, the risk still remains!
Ah, thanks Vinod and Prashant. I think in the process of expanding faster and achieving growth, they are compromising on the margins, the numbers reflect it. I dont know their avg cost of borrowing but would expect lower than DHFL (10.6 %??). Difficult to decide which one to go with among Canfin and DHFL.
donât
Canfin is almost entirely salaried class low risk segment and they don’t charge different interest rates for different customers.
Some comparison is given in the below article between LIC Housing Finance , CanFin and DHFC. Also there was some comparison between HDFC and DHFC on the loan book. Overall article is mainly about DHFC but I was more interested in comparison on different Housing Finance companies.
The interest rate charged by CFHL for home loans ranges from 10.75%-11.25% and 15-17% for its non housing portfolio, leading to an overall yield on earning assets of 11.23% in 2012-13 (11.27% in 2011-12). Some rise in cost of funds (9.30% in 2011-12 to 9.69% in 2012-13) led to reduction in interest spreads from 1.97% in 2011-12 to 1.54% in 2012-13. However, some reduction in cost of funds in H1, 2013-14 owing to higher share of funding from National Housing Bank (NHB) led to a decline in cost of funds for H1, 2013-14. Reduction in interest spreads coupled with rise in gearing levels led to a decline in Net Interest Margins (NIMs) from 3.34% in 2011-12 to 2.82% in 2012-13 and remained at similar levels in H1, 2013-14. Decline in NIMs and some rise in operating expenses (from 0.81% in 2011-12 to 1.06% in 2012-13 to 1.13% in H12013-14) led to an overall decline in profitability indicators (1.75% in 2011-12 to 1.60% in 2012-13 to 1.57% in H1,2013-14) of the company despite decline in credit provisions. However, increased leveraging enabled the company to report higher Return on Equity from 13.29% in 2011-12 to 14.63% in 2012-13(17.2% in H1, 2013-14). Going forward, interest spreads for CFHL are likely to be around 2%, leading to net interest margins in the range of 2-2.2%. Operating expenses for the company are likely to remain at around 1% leading to profitability indicators (PAT/ATA) of around 1.6-1.7% provided the company is able to maintain its asset quality indicators.
NIM will go down from 2.82% to 2% but asset turnover will increase due to expansion in branches which inturn increase ROE. NIM will be down by 41% and currently asset turnover is increasing by 49% so until and unless spread is not increasing from current levels there are not much changes in ROE.
Secondly, It would be great if someone can explain why NIM of Gruh is so high even though borrowing profile of Canfin and Gruh is same.
DHFC looks good, however there are some concerns that people have expressed about management, after watching Kapil Wadhawan I felt satisfied, having said that, even if they reach 100k crores, they will just be twice as big from here, but for Canfin, if they can do 10% market share in Bangalore only, it can make it 4 times bigger!
I have created spreadsheet comparing CanFin, DHFC and GIC Housing Fin, Could anyone update about Cost of Funds for these companies. Also Not sure about AUM OF CanFin and GIC
Thanks for the update Jatin. About steady state valuation, what kind of Price to Book range can we hold on to CanFin given that it’s a PSU at the end of the day?
