Have been reading on Canfin and it does look quite interesting. (Have been late in joining in for discussions as I was not getting a good entry point for the stock…now it seems to have corrected to good levels)
Couple of questions which should help us in understanding the longer term potential and picture:
1). What was the purpose of setting up of Canfin Homes? Or what is its USP?
I’m asking this because Canara Bank is also into home loans…hence why will this co get a push or a preference?
2). Is there any specific area to which canfin caters (something like rural loans, sub-prime etc) which canara bank can’t?
Canfin Homes – Book value according to screener .in is 188. PE is 5.36 for a company that is likely to grow around 20% for next two years according to sharekhan projections and our own vinod ms has higher projections worked out.
Net npa nil. So i guess it should quote at close to book value atleast in normal markets.
Looks like at around 137 stock is entering undervaluation territory. bought around 140 avg price today. Intend to load up as it goes down more. Even if it reaches book value within 1 year it can give 35- 40% returns.
Canfin Home in my view will probably give a pop for one year till the undervaluation thing is the story of past, but Gruh is more of a secular story and will bounce back equally faster and conitnue compounding for much longer.
@ramakrishna: But this is the reason for setting up of the co earlier. What is the rationale today or logic for growth and expansion going forward? Housing finance is a well tapped area now and if someone has to take a new loan, he would first approach to common names like - HDFC, LIC, other banks etc. Why would someone go to Canfin?
I would like to understand the above query caus this may help us in understandingfuturegrowth, NPAs etc.
Ayush
PS: I’m positive on the co and looks undervalued at these levels
1). Canfin has presence in semi-urban areas (towns and outskirts of cities). My assumption is the big names mustn’t be having significant presence there.
3). I have been to a lot of semi-urban / rural areas and have heard people share their finances within their community. So, in a well knit community, if one person borrows from a reliable source, the entire community becomes a target market for that HFI (community here means group of people living / working together and knowing each other fairly well). Its all community based. Banking (by big banks) is more at an individual level.
Boarders - Pls correct me if I have understood it wrongly.
the bet on canfin is only to do with its undervaluation. Its a short to medium term bet.
Gruh based on various financial parameters and promoter pedigree is a far superior business to own for long term. But at cmp also it is in no way undervalued and it never will be bcos there are a lot of guys out there who want to buy it for long term and willing to pay something extra to be assured of long term compounding.
**Digressing from the topic, I feel with the corrections in small and midcaps being overdone – and probably more to come, its time to look for multibaggers rather than compounders. **
Again here the key would be to find stocks which are going to show sustained growth ( and grow more with rebound in economy) and having sound balance sheet, reasonable returns ratios and good management available at around 5-6 PE and which in normal or slightly bullish sentiments for small and midcaps can get rerating to 9-10 levels. This is exactly how mayur, ajanta etc became multibaggers.
Thanks Hitesh for sharing your thoughts in a crisp manner.
One more question related to your strategy is how much percentage of your portfolio you allocate to such undervaluation plays and how much to compounders?
We need to first find out if Canara Bank is aggressively selling their product. It might only be a case of walkin customers being offered a product if they ask for it. Canfin might be leveraging the Canara Bank name for home loans more than Canara Bank itself now.
Housing loan is sold in a big way through DSAs and builder tie-ups. I remember a very active Canfin manager in a city in Kerala who used to have good relation with builders and did well few years back. There is also a perception in a large segment of the clientele that PSU is more trust worthy. Many years SBI home loans are sold more than HDFC home loans. But SBI’s aggression is most often “seasonal” depending on their liquidity scenario and priorities.
Canfin can easily play the PSU card and garner a decent share through DSAs and builder tieups. The opportunity is big. Canfin’s base is small and they should be able to leverage their branch network and employees to reach out to more and more people.
Broadly a home loan is a simple product - people would want timely sanction of the required amount for their preferred property at reasonable interest rate. Trust and credibility have huge importance as property documents are to be kept safely and interest rate changes, penalties etc should be fair. PSUs are increasingly having an edge in the above if they are willing to put in half the effort as the Pvt sector players. This is just my observation.
A dedicated and aggressive PSU Housing Finance Company with focus only on home loans will have an edge over both all Banks and Pvt sector HFCs.
there is no fixed formula for percentage allocation to compounders or undervaluation themes. The percentage allocation are different at different time frames and market scenarios. You can almost call it a flexicap portfolio.
I am not too fond of the so called compounders as I am always on the lookout for companies which are likely to give returns better than compounders. e.g every couple of years if u can latch on to something like a mayur or ajanta which can give 10X or 6-7X returns within 2-3 years then rest of portfolio will take care of itself. In between there will be stocks like kaveri or greenply which can give a quick 50% upside within six months or so.
Its all very well to read and try to follow buffett, munger, lynch and others but I think one needs to innovate one’s own investing strategy depending upon one’s investing mindset.
Your strategy seems great but it needs an ability to find the right entry and exit timing, which you seem to have mastered. Really amazed at your picks and entry/exit timings.Like many others at VP read your posts very carefully as there are many things to learn in each of your posts.
I am still a novice in stock picking, hence continuing with tried and tested ones even though the returns are lower. Hopefully, I will develop some more conviction soon to pick up undervalued ones and gain better returns.
The volumes on this stock vary between 5000 and 10000 daily, and sometimes hits 2000 also.What would be a safe no of shares to hold on to,any rough calculation.Maybe this could be used for all the small/midcaps we deal in.Gujarat reclaim was another stock with liquidity issues,buy/sell orders not getting executed even for small quantities.Iam asking this because of some unforeseen issues like that of GRP one does not get stuck with a large qty of share which one cant sell.
If you are convinced about the merits of investment in a company, I dont think illiquidity is too big a concern.
e.g For most of its trading history, mayur has been a very poorly traded scrip and still it has managed to give superlative returns.
regarding canfin, I am not too bothered about temporary concerns. For me a financial institution in a growth area (housing finance) with nil net NPA available at well below book value makes a good buy. At cmp it seems markets seem to be pricing in no growth scenario.
@makadia: I think the logic given by Vinod seem more logical for Canfin. As of now I don’t think there are indicators that Canfin is operating in a niche area.
Yes, valuations look cheap and there should be decent growth for next cpl of years.
Well this 14.5% stake in Canfin by Sarda energy co Chattisgarh is really surprising as they had around 4-5% stake earlier. Earlier name of the co was Raipur Alloys n they have a reputation of jobbing in Canfin stocks. That must be the reason for volatility in stock prices n retail investors shudnt panic.
Today Repco is listing n let’s see any ruboff effect will happen on Canfin or not?
