http://www.canfinhomes.com/shareholders/A%20Final%20Notice%20of%20AGM%20FINAL%2008072014.pdf
They have already proposed to raise 2500 Crores via NCD for loan growth and looking for approval in the AGM. Also additional 300 crores via bonds for CAR.
Now there is clarity on the fund raising part. Company’s decision of not to dilute equity is a rewarding one for existing shareholders.
Waiting for your comments Hitesh Ji…
Canfin proposes to increase borrowing authority by 2000cr, raise NCD of 2500cr and Tier 2 bonds of 300cr, all in this year. Equity dilution will not happen, however the debt equity is set to increase. And in the lending business, one should have confidence in the management and their ability to manage high levels of debt. From one of the above tables, Canfin already has the highest debt/equity ratio, even more than Gruh, which has pristine, tested management. This could be viewed as a negative.
The networth of canfin could increase to around 525-550 cr by March 15 (assuming growth in total income of 25%, with same net margin as PY and 10% dividend payout).
The above notice speaks of target loan book of 8500 cr, up from 5848 cr as on March 14 ie increase by 2650 cr (45% up), all of which is expected to be funded by the raising of debt. Their current deposits+borrowings are 5268 cr and adding 2650 cr to it would make it 7918 cr. On networth of 525cr, the debt equity would be 15 times, which is quite high in my view.
Their interest costs will increase correspondingly, and to maintain the profit growth, they may feel the pressure to keep increasing their loan book, the pursuit of which should not dilute lending standards. I feel this is a very aggressive move by the management, and I do not mean this as a compliment. I feel they should have gone for some dilution and raised equity. Opinions invited. discl. invested from lower levels and added some at cmp.
Its funny and interesting to note that,
gruh is next hdfc, repco is next gruh, can fin is next repco !
other promising stories cud be muthoot and capital first in nbfc space
I was alalysing nbfc, found that sundaram is probably best nbfc, best ratios best returns, even mkt rewarding them with p/bv of 3.5 highest among many.
Any insights on what sundaram is doing/has done well in the past, moat etc ?
I think Can Fin will need to dilute equity this year to meet the rapid growth planned of 8500 cr loan book…else the debt equity will make it too risky to operate and the company may even surpass the regulatory requirements of capital adequacy and leverage…
The good news is of course that if it dilutes near the current price to book value, it should set some kind of a floor for valuation…
To all of us who are worried about low CAR, high D/E ratio, possibility of lower future growth, here is the comforting news-
Board to consider Right Issue
http://www.bseindia.com/corporates/anndet_new.aspx?newsid=1193629a-fa48-43d6-b220-adf03283cc53
Now lets see how much equity they try to raise & at what price.
Rights issue would indeed be a good way to raise capital and at the same time be equitable for existing shareholders, as whoever wants to maintain his share of the holding, can exercise his rights. It would be dilutive for those who do not want to exercise. This would be a positive in my view as, in my limited experience, I have not come across many companies offering rights shares (is it a thing of the past?). I remember Trent a few years back and TV18 last year, who offered shares at a pretty decent discount to the then CMP and got a overwhelming response.
Would request seniors who have been longer in the market to give their views.
Rights issue is a step in the right direction.
But I would have liked QIP at high PBV as a much better way of increasing share capital. This would have been opportune time for QIP and start a chain reaction of further QIP dilution in future. Though this would’ve diluted owners share which would have been more than compensated by possibility of exponential growth.
According to me, in the rights issue , amount raised is not that high (my personal perception), although it depends on the size of the issue. Even if they raise it through rights issue, I haven’t seen many companies going back to shareholders again in a year to further CAR. QIP is much more flexible (though valuation depends on market) and it would have been better to establish itself in QIP market & take advantage sectoral fancy.
View invited.
QIP is better option for obtaining big fund in current market.
With some reputed Institutional presence, investor confidence rises.
Overall effects of QIP is long term value creating if sufficient fund is taken and deployed on planned manner.
While QIP is the best option, Right issue also provides discount to existing holders. One should not miss it as existing holder.
as we all are talking about fund raising (via QIP or Right).
My question is when canfin has ROE of 16-17% and it isapproachingCAR of 12% later this year . this round of fund raising is veryobviousbut can **company with ROE of 16% grow at 25%-30%**withoutsustainable fundraising.
last three years growth wasachievablebcos company had 17-18% CAR in 2011.now they have to raise funds nearly every two years or so.
if if that is the case than , return to shareholders be cap at level of ROE.
view invited.
from : Kunal Shah
Chairman resigns.why?
Vinod MS and other Valuepickrs, how is the price determined for the rights issue in general and specifically for Finance/Banking kind of sector? Is it some 2X the book value? or some forward multiple? and in case of Canfin Homes what price do you guys think is attractive?
Thanks-Mahesh
Link: http://www.bseindia.com/corporates/anndet_new.aspx?newsid=1193629a-fa48-43d6-b220-adf03283cc53
i had asked on very basic (and important according to me ) but couldnt got any reply from esteem value-pickrs . so please answer it …
canfin with ROE of 17% and CAR of 13% (with least allowed 12%) generate sustainable return above ROE ???
it looks like right issue is the way management is looking to raise funds. so existing holders will put more money and earn more . (as buffet says it is like a goodbusinessbut not great. )
please share your view (whatever it may be ) on this front.
By Kunal Shah
Hi Mahesh,
The management can decide how much they want to raise now and decide the ratio. If they are looking at low level of equity the ratio can be 1:10. The price I think could be at a discount to keep the parent Canara Bank happy. After the rights issue Canara Bank stake might go up if all other share holders do not exercise their rights.
I am think rights may not be the only route the management adopts to take care of CAR. It might be a combination of rights+QIP+Tier-2 capital. Lets see.
Kunal, at ROA of 1.5% Canfin, LIC, GIC should all raise equity from time to time to grow at 20%+ rates. That is why Gruh and Repco enjoy high valuation - they need not raise equity at all to grow at 25%+ rates as their ROAs are 2.7%+. They can also give higher dividends.
Cheers
Vinod
Results are good.Total income has risen a good 40%,YoY,though PAT growth is a bit subdued.CFH is aggressively expanding its branch network.Hope,they don’t sacrifice profitability in doing that! Stock seems good at CMP.Once NIMs rise,we can see a better multiple.
DHFL in the meantime,reported a flattish quarter.IBHL was also slower on the income growth side.LIC HF will report earnings tommorrow.All in all,CFH continues to be a good pick in the Housing Finance sector.
Results are out.
Sales growth@40%q-o-q
Finance cost growth@50%q-o-q very bad
Other operating cost growth@2%
EPS 9.3 v/s 8.1 qoq
300crore raising through rights so at 10% market discount price means right@410rupees can be in a ratio of 1 right share in holding of 3 shares.means33% equity dilution.
Chears
Dharmesh patel
300 Cr through rights issue. Ratio could be 1:3 at 440 or 2:5 at 375.
They may not even raise entire 300 Cr now. Current networth is 452 Cr.
Results - finance costs seem to have increased. Also the deferred tax reserve expense has affected the PAT.
But really surprised to see that the expenses are flat even after opening some 17 new branches.
Some “smoothening” to avoid too low a profit? 
Thank you Vinod, I had no knowledge of how price is decided for the rights, am learning with some recent issues of Indian Hotels, TV 18 broadcast and SBI. Agree price will be decided by the company. I am keeping my fingers crossed and hoping Canfin does the rights at some attractive price. I have a feeling that if I as a current share holder, if dont subscribe to the rights, will stand to loose because the with increased no of shares price is going to correct logically(may be not always) and as a % my holding will reduce in the company.
On the results side, topline is good, if we ignore the differed tax, YOY , NP is like 27% which is pretty good. But I am disappointed with such an increase in interest cost. Lets see how they raise money and reduce interest burden.
Thanks-Mahesh
Hi Mahesh, your understanding is right if you do not exercise the rights your share comes down.
What I have done is back of the envelope calculation based on current number of shares and 300 Cr to be raised…could be wrong.
Have you left Igarashi? I am planning to attend the AGM on 30th.
What is the process to exercise rights? Do our broker provide any kind of form or something?
