Hi Vinod, yes I stopped following Igarashi because I couldn’t get any information from company.
I had bought just few shares and kept reaching the company for some general info, they gave no information and kept postponing the call. All I wanted to know at that point of time, if they have all technical capabilities to design and develop all their products ground up and info future products. At that time I didn’t even know Damani is going to buy or had bought , else I would have done more work and bought. Have always admired Damani.
With respect to their products, no doubt, huge market. Imagine driving all hybrid or electric cars after 20 years and electric motors for every damn major assembly in car, like for engine, doors, steering, sunroof, seats …list goes on to make them power operated instead of manual. Especially cars in India have very few now and will have many more going forward.
This is my first post and I would not be too concerned about lower net interest margins of Can Fin Bank. Can Fin lends to salaried people, and will have lower NII than players like Gruh Finance. Also, their Tier I capital/equity is much lower. It is also going down, quarter on quarter, so their nii should also come down by few basis points quarter on quarter till they infuse equity. NII would jump after equity infusion.
It would be interesting to see if rights would come at a substantial discount to CMP. Else, subscription would be lower and Canara Bank would increase its stake.
~Pranav
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.
It is interesting to see how PNBHF has performed in previous 4 years. I think that it is the real comparable to Can Fin Homes, although it is privately held. Both are promoted by big PSU banks that need capital for Basel 3 by 2018. Look at how PNBHF has increased its business:
year
2014
2013
2012
2011
2010
2009
book size (crores)
10591
6620
3969
3000
2300
1850
Av. Growth 2010-2013
60%
67%
32%
30%
24%
It has grown its book at a mighty cagr of 47%.
Also, Promoters have announced equity infusion of Rs. 1000 crores over next 2-3 years to manage the growth.
PNBHF grew its book by 60% in FY14 and 67% in FY13. CanFin grew its book by 40% in FY13 and wants to grow its book by 45% in FY14. Should we be surprised if CanFin manages to meet the target?
How are PNBHF and CanFin managing to grow at this pace with negligible NPAs, while even Gruh is growing at 20-25%?
To get a hint let's look at how has priority sector home loans of up to 20 lakhs (the relevant business for PNBHFL) of PNB performed from FY10 onwards?
year
2014
2013
2012
2011
2010
2009
PNB - priority (crores)
12618
11,600
11,300
11,300
9,200
9,021
Growth y-o-y
9%
3%
0%
23%
2%
28%
In this segment where the market grew at about 20% per year, PNB was growing its loan book at very low rates. The growth rate was over 20% before 2010, but then PNBHFL started increasing its book and PNB book started languishing. SBI, which does not have a separate home finance subsidiary, has been growing its book at 15% cagr, while PNB grew it at 7%.
Same is the case with Canara Bank.
year
2014
2013
2012
2011
2010
Canara - priority
9000
6200
6600
6600
7400
Growth y-o-y
45%
-6%
0%
-11%
28%
Canara bank grew its priority home loan portfolio at -6% from FY11 to Fy13.
It is as if PNB and Canara bank are transferring their priority home loan book to their home finance arms to create valuation. May be to generate capital to meet Basel III. This makes me less concerned about dependence of Can Fin on Mr. Ilango, and that is why it became a major holding for me.
New Issues - I just saw increase of 45% in Canara Banks priority home loan portfolio in FY14, which is disconcerting. Why this growth in Canara Bank? Is it because CanFin wants to grow at 45% and even after that there was scope to lend more to this segment? Also, My Iyer, Director and Chairman of the board has resigned, but I have no idea of the reason behind it. Time to keep a watch. What say?
Rights issue was chosen over QIP because they wanted to avoid “poaching”. I guess the sponsor Canara bank wants to retain control and is wary of big institutions muscling in by cornering sizable chunk via QIP. Rights issue ratio will be decided by merchant bankers who have been appointed
Elango’s term has been extended till July 2015 and the chairman said he will take up the matter with board to possibly extend it further.
Company’s vision is to have a loan book of 35000 crore by 2020 (usual disclaimers apply)
On the new affordable housing regulations , bank competition may increase but market size is huge and canfin is still a small player with small share of the overall pie so lot of room to grow.
On Increased contribution from DSAs increasing costs, DSA contribution is currently 45% and cost for business from DSA is only 0.17% higher compared to direct selling so overall impact might not be that significant.
Targeting 130 branches by 2015 . Builder loans currently very small (17 crores?) and only 23 accounts have loan of > 1 crore
Board assured Company has adequate risk management practices and training in place to ensure quality of loan book does not get impacted due to aggressive expansion and hiring of new employees from outside.
Khan thank you for the updates. The loan book target looks pretty aggressive, agree there is lot of room to grow. Wondered if there was any discussion about increase in interests cost and how are they going manage the borrowing costs going forward.
Was there any discussion at all about when will they make decision on Rights?
could anybody please explain what is the process of exercising rights? How does the rights issue work? Do I need to sell the stock to buy it back again?
Only update on rights issue was they have already appointed merchant bankers and will release info about ratio,timeline etc in due course based on their recommendations.
Nothing particular on borrowing costs, but what I understand from lic hf’s call which had a similar spike in borrowing costs this quarter was there was lot of uncertainty in debt market from April- June due to confusion related to new company’s law so they couldn’t raise enough funds and had to rely on higher cost borrowings from banks. This has resolved I believe towards end of June and they were able to raise 2000 crore via ncd/bonds at lower rates recently and they guided for borrowing costs to be lower going forward. I guess same thing might have affected can fin too.
company will declare the record date and ratio of right shares( for example 1 right for every 2 shares held), those investors whose names are on books of the company at record date will have right toacquirenew shares at announced price.
after that all holders will received right forms by post , u have to fill the form and pay the amount …(u can even apply for more shares than right allocation ) the no. of shares alloted will be ur rights (at lest) , and if there are anyunsubscriberights it will be allocated to uradditionalapplication.
i hope that is helpful feel free to ask any questions…
Did anybody hear anything about the proposed rights issue? I followed up with the investor relations of Canfin he was pretty vague and talking of months to make a decision. Does anyone have any update?
They should need additional capital. One would expect them to raise Tier II capital of 300 crores, given that they are delaying the rights issue. Ilango’s tenure has been extended till FY15 only. The delay in rights issue makes me feel like I should keep a close watch on the company.
I had read this company but couldn’t form an opinion then. Recently i have come across M&M Finance. They too have a subsidiary for rural finance, has been growing at much better rate than CanFin. It is 87.5% owned by M&M Financials and 12.5% by NHB. They have been doing good. In my opinion, M&M Finance can be a proxy to low cost housing, focused on rural areas and better than CanFin. NPAs too have been contained at low levels… + Name of Mahindra,. If we read history, Mahindras are good in capital allocation. Once the price is high, they go for QIP, which increases book value, which still betters P/BV going forward. In case they have excess cash, they give dividends.
Ashish, how much is housing business contribution to M&M’s income and profits?
Even if the housing arm does very well, it may not mean much if the main business is sluggish. If you believe in housing sector growth, you need to choose a pure play HFC.
This does not mean M&M is not a good investment option. I too like the company.
You are bang on, right now HF business doesn’t contribute much to profits of M&M but the pace is greater than the whole, right now they are setting up the supply chain, touch points with customers/potential customers. Total outstanding loans are just 1350 Cr right now but just 3 years back they were 300 crores. I am not saying that it is better than CanFin, i m saying if one is confused regarding the future growth prospects, loan quality if CanFin as it is a govt company, one can have a look at M&M Fin also.
Thanks
Ashish
Pe been doing good. In my opinion, M&M Finance can be a proxy to low cost housing, focused on rural areas and better than CanFin. NPAs too have been contained at low levels… + Name of Mahindra,. If we read history, Mahindras are good in capital allocation. Once the price is high, they go for QIP, which increases book value, which still betters P/BV going forward. In case they have excess cash, they give dividends.
The Rural Home Finance business of MMFIN is a bit different from the usual home finance business. As far as I remember, the ticket size is less than 1 lakh rupees and it is not a productive expenditure for the household (no rental income). It is usually the lower priority loan with high interest rates. Also, MMFin can not take control of agricultural land that is usually the collateral. It can only ensure that the land is not sold/transferred without their agreement, something like a negative lien.
My point is that it is sort of a unique business and calls for research and good understanding. If you are looking for a good financial conglomerate with substantial exposure to home finance, then Sundaram Finance can be a good option.
anyunsubscriberights uradditionalapplication.