@ Prasanna- Selling is much more difficult than buying!!
But given zero NPAs, huge growth in loan book, improving ROE… my fair value will be 1.5 times Book for Canfin.
Result for the quarter and FY are out. They are below Jatin’s estimate but in the range.
Revenue - 161 crores
Profit - 20.1 crore
FY14 PAT - 75 crores
EPS - 37
http://www.moneycontrol.com/stocks/reports/can-fin-homes-limited-795254.html
Q4 results out:
http://www.bseindia.com/stockinfo/AnnPdfOpen.aspx?Pname=Can_Fin_Homes_Ltd_280414_Rst.pdf
Within jatin’s ranges
Q4 Revenue at 161 Cr; 2013-14 Revenue at 578 Cr
Q4 PAT at 20.1Cr; 2013-14 PAT at 75.1Cr (up 40% yoY)
Q$ EPS at 9.8; 2013-14 EPS at 37
stock flat.
While total income for Q4 grew 43.4% YOY, the PAT growth was 25%. The main reason appears to be increase in interest costs, which went up by 49% YOY. Also, in Q4-FY13, the company had paid tax @ 35% to cover the shortfall in tax provisions for earlier quarters. The tax rate was @ 28% in Q4-FY14. Had tax been paid at normal rates in Q4-FY13, the PAT growth would have reduced further.
For the full year FY14, total income increased 47% and PAT increased 41%, mainly again due to increase in interest cost by 50%.
With inflation showing no sign of abating, interest rates do not look as if they would come down in the next 1-2 quarters. However, as long as Canfin maintains its topline growth, the stock should not drop much from here.
FY14 EPS is 36.2 and BV is 222 translating into trailing PE of 7 and PB of 1.13, which should be maintained and hopefully increased if growth remains intact. The company’s presentation which follows a few days after results, would give details about loan book, sanctions, disbursements, branch expansions etc.
Discl. - invested from earlier levels.
Results slightly lower than my estimates… or my estimates were slightly higher 
Good thing is loan book has grown from 5355 crs to 5875 crs in q4. So next few quarters should be good also.
Dividend 6.5 rs up from 4 rs last yr.
Company raised NCD of 250crs in the last quarter.
Sharekhan coverage on Can Fin Homes. Below is the link for stock update report
http://www.moneycontrol.com/mccode/news/article/article_pdf.php?autono=1077090&num=0
Some highlights from above report.
Loan book grew 46% y-on-y to 5900 cr. Loan book growth expected to be up to 8000 crores for fy 15 driven by branch expansion and focus on retail loans.
Asset quality remains robust with net NPA zero and gross NPA coming down to 0.2 from 0.3 in previous quarter. Provision coverage is 100%
Margins which declined in past couple of quarters is likely to stabilise in fy 15.
Branch expansion continues and it added 16 branches in fy 14 and expects to add 24 in fy 15. Breakeven time for a new branch is usually 15 months.
Some projections
year 2015 2016
book value 269 319
eps 49 61
ROE is around 20% and ROA is 1.7.
Housing finance business in India seems a business with very few variables in next few years. And Canfin seems to be on track for strong growth with stable asset quality.
I think they might have to dilute equity during fy 15. AT what price they can do so remains to be seen.
disc: Invested and remain bullish.
Very good set of numbers, just that interest costs dampened the profits a little bit , still exceedingly good performance. Had spoken to few people in Housing loan sector and had learnt Canfin has been aggressive. Was expecting some increase in NPA butpleasantly surprised they have managed the asset quality well so far.Incremental growth on disbursal QOQ is very satisfying and my wish of them reaching 20K loan book size could be achieved in 4 years easily at this pace. Like I had mentioned earlier Bangalore really haslong term sustainable demand because of IT, imagine, big 5-6 IT companies together in Bangalore hire nearly 1 lac IT freshers every year!
Invested and looking to add some more.
A good link tweeted by Ayush M:
Amazing consistent improvement and performance by Canfin -http://www.canfinhomes.com/investor.html Link: http://t.co/BWDF2xkZQe . Kudos to the management for bringing such a big change!
Very impressive read!
Disclosure: Starting to have position.
Was looking at CanFin to allocate some of the pf to financials.
One of the key lessons that I learned earlier with my investments in banks was that the rate at which equity is diluted in relation to Book Value (i.e PBV) is THE MOST important parameter in financials business in super-growth stage (growth > ROE-Dividend).As CanFin is growing, it is experiencing the common constraint of CAR ceiling. They earlier increased it by increasing Tier-2 capital where future options may be capped due to risky leverage scenario though they have a leeway of a year or so currently.
The reason Yes Bank was able to create tremendous wealth was that it was continuously able to dilute equity at envious PBV ratio, due to Rana Kapoor, and that led to significant increase in Book Value and as financials are valued on PBV ratio, it became a vicious cycle of higher prices and dilution at higher PBV till the growth faltered.
I guess the perception of HFC & NBFC has had a huge make-over in the past year or so. Looks like the opportunity size is huge.CanFin may never command PBV YES Bank did , but even dilution at 2x can be value-accretive for the shareholder .
But the moot question is:
Is the frenzy in market for huge tailwind HFC high enough to make a decent regional player with a PSU tag to be valued at 2x BV by a private investor?
Once the first such dilution occurs, then subsequent value creation could be real quick.
Disc: Not invested.
Good points mentioned Utkarsh.
Giving some highlights below from Edelweiss report on Can Fin. Nothing new though that we have not discussed here.
Good points mentioned Utkarsh.
Giving some highlights below from Edelweiss report on Can Fin. Nothing new though that we have not discussed here.
There is no doubt that Can Fin has started getting the attention that it deserves and patient investors are being rewarded by its re-rating. Gradually it has started coming on the radars of brokerage firms and getting increased coverage.
Edelweiss has initiated a coverage on the stock with a Target Price of 450.
Given below are the highlights from the report:
Investment Rationale:
**Niche presence in metro and non-metro markets **
CANFIN is a play on the high-growth Indian housing finance industry, which is driven by growing urbanization, rising income levels, low penetration of housing finance and shortage of houses. The company has created a niche for itself by focusing on low-ticket loans (average ticket size INR 17 lakh) in Tier 1 & Tier 2 cities, as operating hassles and cost compulsions prevent banks from entering this segment. CANFIN is aiming to tap this opportunity with a direct marketing approach and through DSAâs. It has 85 company-owned branches spread across Tier 1 & Tier 2 cities. The companyâs loan book has grown at a CAGR of 26% over the past five years. Going forward, we expect PAT to grow at 25% CAGR over FY14-16E led by robust loan growth.
**Faster turnaround time - key competitive advantage **
CANFIN has been able to achieve faster turnaround times owing to its robust loan origination system, which allows real-time transmission & review of loan applications with a personalized focus at any point in time. We believe that faster turnaround time right from loan origination (as fast as 2-3 weeks) to the release of deed has provided the company with a competitive edge, which it can leverage to increase its customer base.
**Loan book to grow ahead of industry average **
CANFINâs advances grew at a moderate pace of 19% CAGR over the past 10 years, mainly due to lack of focus. But since March 2011, under the leadership of Mr. C. Ilango (MD), CANFIN has aggressively expanded its loan book, recording a 40% CAGR in advances over FY11-14E. Sanctions have grown at 75% CAGR during FY11-14E while disbursements have grown by 76% CAGR. To tap the robust demand in the mortgage industry, CANFIN has added 42 branches to its network since FY11, compared with no branch addition in the last decade. Further, it plans to open 25 new branches over the next two years. The enhanced focus to expand balance sheet as well as branch network should help the company sustain the current loan book growth. We expect CANFINâs loan book to grow at a CAGR of 20% over FY14-16E.
**Best in class asset quality **
As of FY14, CANFIN has GNPAs of 0.2%, nil NNPA and provision coverage of 100%. Focus on salaried class (92% of the total loan book) with average ticket size of INR 17 lakh, in-house credit & legal teams and LTV of 75-80% have enabled the company to maintain respectable asset quality over the years. The company has relentlessly focused of improving asset quality over the past three years. As a result, GNPAâs have improved from 1.4% in FY09 to 0.2% in FY14.
Outlook & Valuations (Attractive)
At 0.9x FY16E adjusted book and 4.9x FY16E earnings, we believe CANFIN is attractively priced compared to its peers, delivering sustainable RoE of around 18% and RoA of 1.5%. CAR of 13.8%, gross NPA of 0.2% and PCR at 100% make a strong case for the stock to trade at par to peer group valuations. We value CANFIN at 1.5x FY16E book value, arriving at a target price of INR 450 (upside potential of 70% plus dividend yield of 3.6%).
Key Risks:
Concentration Risk:
70% of loans are in South India, which presents concentration risk, in our view. CANFIN has been expanding outside the south region which will definitely bring in the much needed diversification.
**Stability in Leadership: **
CANFINâs current performance is driven by new MD Mr. Ilango who has joined in Mar 2011 and will be serving till FY16. Any change in leadership may impact future growth of the company.
**Competition: **
NIMs may come under pressure if unable to pass on the pressure of increased funding cost.
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Thanks HR.
Canfin indeed has come to the notice of the market participants. The PSU parentage which was a taboo during the Congress govt may now be seen in a different light in view of Modi govt taking power.
Coming to the growth trajectory, I think Canfin will need to dilute equity during current financial year and looking at market sentiments, I think it will be at a good premium to book value and so the ride may continue higher.
Hello all,
I have recently joined the forum and I had a question. I have read through the discussion of Can Fin since it was quoting 152. I want to know can i enter this stock at this point from a long term perspective or can I start accumulating it. I am aprehensive about two things, 1. It is already trading at 1.5 times its book value. 2. Since Jan 2014, it has almost doubled. 3. In last 1 week it has moved around 40% (though edelweiss targets 450/-, I wonder what will be the marin of Safety, as it already above book value, and this is just start of bull run - i cannot expect it to come to Jan Feb 2014 levels again.
Please advice. What should be my approach.
All,
I have a really basic accounting question so seniors please excuse me. The radius of my circle of competence is Zero and I am trying to create one 
What is considered as Sales in a HFC? Say a loan of 10L is sold and down payment is 3L.
Is 10L considered as sale for that month or 3L is considered as a sale and EMI is considered as a sale every month there on?
If EMI is considered as a sale every month, then the business model is very attractive as the companies can grow the sales with very little effort.
Cheers,
Sathya
OK… that was really stupid of me to bring down payment into this.
I assume the loan amount of 10L will be added to Net current assets and the EMI will be a part of sales. Help pls?
Cheers,
Sathya
Hi Sathya,
The interest part of the EMI forms interest income which is the top line for HFCs. So once a loan is given the lender keeps getting revenue every month through EMI payments.
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Thanks a lot Vinod.
Interest earned is ‘Sales’ and interest paid is ‘Interest’ in the P&L Account. Ignoring things like Operating costs and tax… the difference between these two is the profit… makes sense now.
Sorry, I should have posted this in Investing basics section… Will do so in future.
Cheers,
Sathya
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Surprised while going through the Can Fin Homes website this morning...the number of branches have increased from 83 at end of March 2014 to 99 currently...16 branches added in 3 months timeframe...they are getting extremely aggressive...100th branch opening on July 5..
To put it into perspective, the number of branches were stagnant for a decade at ~40 till March 2011, and the Company added 11 branches in FY12, 17 in FY13 and 14 in whole of last year!
Overall the housing finance sector has excellent headwinds to provide attractive long term investment opportunitiesâthere could be multiple winners amongst the pack due to the reasons below â
- Huge opportunity size â India demographics, low mortgage penetration (8% of GDP, compared to 20% China, 17% Thailand), government focus on low cost/ affordable housing â structural growth story of mortgage remains strong, tax incentives, focus on RE as a key investment asset
- Economic improvement â should lead to housing market recovery (though the performance of these players do not indicate a slowdown J)
- Favourable Economics â High ROE, high NIMâs, Low NPAâs, low ticket size are key factors that enable efficient and profitable econmics
-
Leadership â All players small and regional. Companies are just scratching the surface in smaller Tier 2/3 towns...pan India potential- Low NPAâs â house as secure collateral, low ticket loans, tight credit appraisal process
-
Reducing interest rates â Interest rate cycle going forward should lead to better spreads, NIMâs and returns (NHB provides competitive rates of interest)- Competition - Limited competition from banks as focus of HFCâs is on Tier2/3 cities and in self-employed segment (ease of appraisal key due to focus of HFCâs)
However, the whole sector has been significantly re-rated in the market run up in the last 4 months, but does it offer potential to make long term investments?
Looking at the current business performance and valuations compared to peers, would be helpful to get some perspective on potential investment ideas -
|
Housing |
AUM (INR cr) |
CAR (%) |
NIM (%) |
Gross NPA (%) |
Net NPA (%) |
ROA (%) |
ROE (%) |
Mkt cap (INR cr) |
BV/ |
EPS |
P/B |
P/E |
|
HDFC |
1,97,100 |
17.9% |
4.0% |
0.7% |
2.7% |
20.5% |
1,58,104 |
241 |
51 |
4.2x |
19.9x |
|
|
LIC HF |
91,340 |
17.4% |
2.4% |
0.7% |
0.4% |
19% |
16,593 |
154 |
26 |
2.1x |
12.6x |
|
|
Dewan |
40,600 |
16.4% |
2.7% |
0.8% |
1.7% |
17.6% |
4,699 |
293 |
41 |
1.2x |
8.9x |
|
|
Indiabulls |
41,167 |
19.1% |
0.8% |
0.4% |
3.8% |
27% |
13,022 |
168 |
46 |
2.3x |
8.4x |
|
|
Gruh |
7,009 |
16.7% |
4.3% |
0.3% |
0% |
2.8% |
32% |
7,205 |
17 |
4.9 |
11.8x |
40.6x |
|
GIC HF |
5,312 |
14% |
2.7% |
1.86% |
0% |
1.8% |
17% |
950 |
120 |
18 |
1.5x |
9.7x |
|
Repco |
4,661 |
24.5% |
4.7% |
1.5% |
0.4% |
2.7% |
16.4% |
2,955 |
120 |
18 |
4.0x |
27.0x |
|
Can Fin |
5,848 |
13.8% |
2.7% |
0.2% |
0% |
1.5% |
17% |
865 |
220 |
37 |
1.9x |
11.4x |
|
Median |
2.2x |
12.0x |
Source : Company annual reports, filings, website
I am summarizing below some key observations on each company -
- Gruh is clearly the darling of the markets, given its parentage (HDFC), and its outperformance on each of the parameters - 30%+ ROE, high growth, high NIM..trades at >11x Book Value! Credit appraisal process, focus on self-employed, small ticket size of loans, focus on non-metro present immense opportunity to Gruh
- Repco has all the right ingredients to become the market leader similar to Gruh...highest NIM's of 4.7%, rapid growth of 30%+, comfortable CAR of 25%...ROE seems low due to high equity base due to listing...Market values it highest after Gruh with P/B of4x
- Indiabulls seems to have excellent metrics â 3rd largest HFC, high growth, 27% ROE, 3.8% ROA, Low NPAâbut market valuation doesnât value it even close to Repcoâmaybe its got to do something with the reputation of the promoters..
- Dewan Housing â Again like Indiabulls, has a large AUM (4th largest), fastest growing NII of 36% in last 4 years, decent metrics, but market discounts all of it...possibly due to promoter & management reputation
- LIC HF â has a 90,000 crore loan book with 10% market share, negligible NPAâs. Key is that it has over 50% fixed rate exposure on its loan book, which in a tightening interest rate environment had caused margin compression, leading to ROE erosion by 7% in past 3 years. Maybe it is the overhang of the scam of project finance to builders that the market is cautious about LIC HFâ.Current valuation is close to Can Fin Homes, and given its brand recall, size, reach and easing interest rate regime, could it potentially be a winner from here?
- GIC housing finance â size is close to Can Fin with similar metrics on NIM, ROE, ROA âbut significant difference in valuationâis there any room for growth?
- Can Fin Homes â has seen exponential growth since Mr C Illango took over as MD, branches have doubled, loan book has doubled, ROE improving, and the aggression is of a private companyâCompany was significantly undervalued due to PSU tag in Feb trading at 0.75x FY14 Book Valueâthere has been a significant re-rating post that, but is it sustainable?
I think the key monitorables for Can Fin Homes
- Any increase in NPAâs (could be driven by aggressive expansion)
- Equity dilution â CAR near 12% (so will need to raise funds potentially this year). At what valuation will the company raise funds?
- Interest rates â Should go down as inflation reducesânot immediate, but provides potential upside
- Property prices falling 40 â 50% - possible, but not very likely
- Improvement in ROE/ ROA going forward
In this scenario, how should we be looking at Can Fin Homes given the rapid rise from 170 in Feb 2014 to 415 currentlyâ Providing some simplistic projections below
|
FY14 |
FY15E |
FY16E |
|
|
Book value growth |
16% |
15% |
15% |
|
Book value per share |
220 |
253 |
290 |
|
Price to Book |
1.9x |
1.6x |
1.4x |
Using conservative assumptions of 15% growth in book value, does the stock look fairly valued from a 2 year perspective? What is the likelihood of a higher book value growth over the next 3 years given the aggressive strategy of the management?
What are the views with regard to other players? Does GIC HF or Dewan Housing offer opportunity to enter at current valuations? What about LIC, Repco HF and Gruh? What would be the right price to enter these?
Would be great to get views on what could be the strategy regarding Can Fin and the HF sector for the long term
Disclosure : Can Fin Homes is part of core holding since 170 levels
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