Hi,
can some one please tell me how to register for rights issue?
Is it possible online through Demat account?
Hi Santosh,
Where did you get the BV for HY1 15 and FY15 from? Would help to know the nature of the source.
Also I looked at the PEG ratio. Looks like even if they repeat the earnings of HY2 14 the price range of 700 to 725 should be achievable if PEG ratio of 1 is assumed.
Other factors that would probably push the price even further are
a. Sentiments aroundrights issue
b. Government investment and policy for the low cost housing sector, smart cities. It would be good to know the branch distribution, their presence in tier 2 and 3 cities to assess this.
Ravi
@Ravinder
H1BV one can find from screner.in and FY15 earlier expected was 270 ( several research reports, check several old posts of Hitesh in this thread only), now after rights issue will further increase to around 310 ( estimated, read VickyB comments above). So FY 16 could be around 370 ( estimated)
@ sridhar, yes, its only thru dmat ac only.
CAR has been dropping since FY 12 @ 5.6% y-o-y since 2012 till FY14 pointing to the fact that net margins would have been even poorer had they maintained CAR.
NIM has been dropping @ 10.38% y-o-y since 2012 till FY14 and fell 10% in HY1 15 alone
Rate of growth of Loan book/ Employee has turned negative this HY1 15
ROA has fallen y-o-y @ 5% since FY12 till FY14
Rights issue should fix CAR but it will dilute EPS and push PE up in the near term and make the PEG ratio even worse.
Expansion of branches and employee base is eating into their margins more deeply than is apparent and letting CAR drop masks that.
CANFIN management will really have to work on improving operations efficiency and that is where I think the devil may be hiding.
Also looking at the 70 cities they are working in 39 are in TN, AP and KAR. (TN - 20, Kar - 11, AP - 8). They should be facing and will increasingly face more competition from private players like Aptus and others who will have better operations efficiency. 72% of their loan book is from South.
Product mix: 83% of their lending is to individuals and for housing. But lending to individual salaried buyers (84% of the total individual buyers) will become increasingly competitive. Even 25 basis points disadvantage in loan interest rates will take the customer away from them. MD did mention on Nov 24th that have been focusing on non housing loan advances against property. And that may be fetching them better returns and needs examining. Product mix is something that needs to be monitored over next two quarters to see if it is helping improve the situation.
Rights issue will fix CAR but it may have only a marginal impact on NIM. Needs to be checked.
I am tempted to invest as growth story has been good so far. Markets will grow especially if current govtâs reform story starts becoming real. But management efficiency and product mix are my two big concerns. My worry therefore is their ability to improve efficiency and mix over the next two quarters. Otherwise FY15 results would be disappointing, I think.
Ravi
1 Like
Hi Santosh,
In order to maintain CAR they will have to invest these 300 crores in govt securities. I am not sure they can use it for lending. So not sure how this will impact NIM.
But let us assume that they can actually use the entire 300 crores for reducing debt.Their current loan book size is 5800 crores. So the reduction in debt would be 5%. Their interest outgo would drop by 5%. Their NIM has dropped by 10% in HY1 15 itself. So dont see how the NIM situation really improves.
Ravi
BVwill
And Gross NPA have increased from .2% in FY14 to .28% in H1 15
Would anyone know how to find out mix of debt (fixed vs. floating) that Can Fin carries- NCDs, Deposits and Loans from other banks/ NHB? My concern is that RBI rate cut will help companies introduce cheaper products only if their debt is also tied to a floating rate or they have competitive ability to restructure debt. Can Fin is restructuring its debt as per the November interview on Money Control. But knowing current debt structure would be helpful in assessing the long term potential.
Does Can FIn have the ability to compete in a market that will see more traction in low income and EWS housing? This would be largely sub 15 lakh loans while the current average ticket size for Can Fin is 18 lakhs. Not sure how smaller ticket size would impact administrative costs for them.
Spent some time on their web site and looked at their product offerings. They look good but not sure whether they are differentiated enough in a highly competitive market.
Today IIFL has come with Canfin as thetop pick for 2015 as fasted growing HFC, refer the research report on web.
They have estimated BV as 387 and the report says stock is pretty cheap as 1.3 timesp/b(forward)
@Rabinder they also clear your NIM doubts and mix of debt etc.
Ravinder - Margins will be low due to competition and branch expansion etc. It doesnât mean lack of efficiency.
High rate ofloan book growthwill drive the company is forward, which means they will require to raise funds (right issues etc) more often. We shouldnât mind this model imho.
Disc: invested.
I have bought this last year and have been following. I often think I should switch to repco home finance every time I look at Repco numbers, thats a pure growth while managing efficiency. Have been holding to Canfin because it was undervalued and had started growing, there is a huge market that these HFCs can grow with but end of the if you would like to hold for 6-8 years, I am often in dilemma whether to stay with it or to switch into Repco, Canfin home makes about 33% of my portfolio
Can you point to the link where IIFL has recommended it?
I will be investing in Can Fin but will keep reviewing my long term position in this scrip. I still need to see differentiated value in Can Fin from long term perspective. I cant see that right now.
thetop timesp/b(forward)
Thanks Santosh for the IIFL link. It helped confirm some of my doubts and answer a large number of questions I had. I am sharing my Can Fin strategy with the board members so that some of you will be motivated to pick weaknesses and point flaws in the strategy. So all kind of inputs are welcome.
On Debt. Most of their long term debt is from NHB and other banks indexed to the base rate so that is good.
IIFL report confirms my key worriesâŚ
a. FY15 results will be poor
b. portfolio spread is down and that explains lower earnings. Portfolio spread has dropped by 22% but earnings will drop by close to 60%. The additional drop must be explained by increased operations costs.
I also know that Rate of loan book growth / employee has dropped as they have added significant number of employees this year. hopefully this will drive future growth of 35%.
I believe the price will rise through Jan and Feb, probably till early March and hit 700. I expect the prices to correct in April post FY15 results. I am therefore taking a position now but will exit before FY15 results are declared. I will take a LT position after Q1 FY16 results if I see
)- CanFIn sustaining its loan book growth rate at 35% plus.
)- Portfolio spread starts climbing back from 1.4%
)- NIM flattens or starts improving
)- ROA and ROCE start improving
)- Rate of loan book growth/ employee starts turning positive again.
)- PEG ratio stays at 1 or below
Till this happens it is very difficult to see a differentiated value and the choice may then be another HFC in preference to CanFin. The sector must be invested in. That is a given.
Ravi
@Ravinder Challu: Sorry I could not help commenting after reading few of your posts. Please do not take it in wrong way. Just stating my experience of analyzing financial stocks.
I think you are thinking of canfin numbers in all wrong ways possible. First, forget about PEG ratio for NBFCâs. They are sometimes valued on PE but mostly on PB. PEG is out of question. Else Canfin will be valued at 40 PE and DHFL at 50 (5 year growth 50%, 5 year avg PE 5-7)
Next you have giving YoY % fall in ROA, NIM etc. Sir, NIMâs falls are stated in basis points not % wise. Yes Canfin NIM is on declining trend. But please look at NIM as fall from 3 to 2.8 to 2.5 instead of saying 15% fall in NIM.
Also donât ever think on lines of âDebt Reductionâ in case of NBFCâs. What they can reduce is leverage (loan/equity ratio). Reducing debt does not apply to financial companies at all. Debt is their raw material. The 300 crores rights money will help canfin improve Tier-I capital ratio and overall CAR. Which in turn will help it give more loans. It could not have continued 40% loan growth without raising capital so itâs good for them.
2 Likes
Thanks Nikhil⌠appreciate your inputs⌠will factor them in⌠especially on valuation by P/B instead of P/E. Wasnt thinking in terms of debt reduction but reducing interest burden from debt. Finance companies will constantly need to raise debt in order to grow else growth will not happen.
Hi Ravi,
It is clear that you have not evaluated many finance companies earlier. But, you are learning it fast and are asking the right questions. Try reading some good analyst reports on HFCs/NBFCs to understand the basic framework of analysis, but DO NOT take their recommendations seriously. Best of luck!
My two bits are not to worry too much about product differentiation in home finance sector for Can Fin. Product differentiation is needed primarily when there is cut-throat competition. That is not the case in sub 20 lac home loans segment at present. Can Fin has the advantage of the parent with branch network all across the country, which gives it the ability to cross geographic barriers and scale up in a sustainable manner for a long period. This too is a differentiation that adds value to the company.PNBHF is another comparable, which is much more aggressive and has grown balance sheet at ~70% over previous 3-4 years.
Regarding operating costs you can use the 9 months taken by a new branch to breakeven to infer about the steady state profitability under present conditions. That is, all branches that were opened in previous ~15 months combined are contributing to 0 profits. All the profit is being generated by branches older than 15 months. RoA / (number of old branches/number of all branches) would give you an estimate of their sustainable profitability (RoA). You can use these deductions to judge if the management is speaking the truth or not. So, when Illango says that he is targeting 2% RoA in a few years, I can form an opinion about whether he has planned how to achieve his targets, or is bluffing to increase the share price.
disclosure: heavily invested
~ wish you and all of us a very happy and rewarding new year 2015!
On the lighter side, one needs to get some money ready, as most ppl are fully invested these days. Even 1:3 rights issue means 1/3rd the holding amount, which could be huge as the stock has further run up !
Hi,
By mistake I wrote in the last post that Ilango said that he is targeting RoA of 2%. He is targeting RoE of 20% and not RoA of 2%. The target RoE should correspond to RoA of 1.6% to 1.7%.
~Pranav
Hi Ravi,
years,
With m cap now 1400 crore, raising 250 - 300 cr, rights issue need to be 20 %, 1/5.
so my estimation says, fy 15 BV will be 342
Vaibhav & Vicky B, in your calculation, you need to be add Q4 PAT of 20 cr and now divide by 1.2 n rather than 1.3 n
if before rights price is 700, post rights it will be 611, so it will be at huge discount with BV of 342, I mean < 2 p/b
With fy 16 BV could be around 410, with 2.5p/b it could be 1050, despite adjusting rights ratios. I think this is what mkt has realised off late, it may lead to huge rerating.
I think the main reason is for 1000 cr mcap, 300 cr rights issue of pretty big, that too at a significant premium to BV. This is leading to this huge re rating.
Someone from fin background can post a detailed calculations. Obviously we are missing Hitesh bhai for his simplistic wisdom !
Santosh, Whereâs the confusion man?
At the time of my last calculation, MCap was ~1000 Cr . Now it is 1350 Cr.
So obviously less number of shares will have to be issued to raise 300Cr. So the ratio would be less than 3:10, perhaps 1:4 or 1:5 (depending on the M Cap at the time of issue and discount that CanFin board decides to the give for the newly issued shares)
Now since the newly shares will be less than what we had assumed in our last calculation, so the new book value will obviously be higher than what we had calculated the last time.
(VickyB username has been changed to vaibhav btw)
< 2 p/b
With fy 16 BV could be around 410, with 2.5p/b it could be 1050, despite adjusting rights ratios. I think this is what mkt has realised off late, it may lead to huge rerating.
I think the main reason is for 1000 cr mcap, 300 cr rights issue of pretty big, that too at a significant premium to BV. This is leading to this huge re rating.
Someone from fin background can post a detailed calculations. Obviously we are missing Hitesh bhai for his simplistic wisdom !