Download Can Fin Homes Limited

Ashika Research - Equities
Can Fin Homes Limited
June 062014
Company Description
Can Fin Homes is a 26 year old housing finance company
registered with the NHB and headquartered in Bangalore. The
company is promoted by Canara Bank in the year 1987 which
owns 42.38% shareholding of Can Fin homes. It predominantly
lends to individuals which comprises of 93% of loan book with
an average ticket size of Rs 16 lakhs. It has a pan India presence
with 83 branches in over 15 states of which 42 branches were
added in the last three years. Further, more than 80% of its
branches are located in tier 1 and 2 cities. Can Fin Homes enjoys
5 star rating from NHB for the refinance.
Investment Rationale
Strong presence in South India
Recommendation
Buy
Target price
Rs. 500
Closing price
Rs. 357
Potential upside
40%
Company Information
BSE Code
511196
NSE Code
CANFINHOME
Bloomberg Code
ISIN
CANF IN
INE477A01012
Market Cap (Rs. Cr)
745
Outstanding shares(Cr)
2.05
52-wk Hi/Lo (Rs.)
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Headquartered in Bangalore, Can Fin Homes has a strong
presence in South India where 4 southern states constitute
about 70% of the loan book. Moreover, volume offtake in the
realty space has been steady in Sothern parts of the country, led
by Bangalore where Can Fin has a strong presence (16% of its
branches in Bangalore and 70% in South India). Besides, the
branches are strategically located in Tier-I & Tier-II cities and
primarily cater to customers with loans average Rs 16 lakh
which allows for interest subvention.
Avg. daily volume (1yr. on NSE)
367/113
21888
Face Value(Rs.)
Book Value
10
220
Relative performance chart (one year)
Strong growth in loan book over the years
The loan book for the Housing Finance Company (HFC) grew at a
five year CAGR of 26% led by 52% & 53% five year CAGR in
sanctions & disbursements respectively. The net profit has
grown by 19% CAGR during the same period. Focussed
approach, aggressive branch expansion coupled with well
defined strategies has resulted in strong loan growth. Under the
leadership of Mr. C. Ilango (MD), Can Fin Homes has aggressively
expanded its loan book, recording a 38% CAGR in advances
over FY11-14. In order to expand its reach in the cities, the HFC
has expanded its branch network by 14 in FY14 and by 17 in
FY13. The branch expansion will bode well for the company in
order to sustain higher loan growth.
In Rs. Cr.
FY13
FY14
FY15E
FY16E
Net interest Income
96
134
189
240
NIM (%)
2.9
2.7
2.7
2.85
Operating Profit
77
107
142
182
PAT
54
76
93
121
EPS (Rs)
26
37
45
59
BV (Rs)
191
220
258
307
0.4
0.2
0.3
0.3
GNPA (%)
Share holding pattern as on 31.03.2014(%)
Source: Ashika Research
1008, Raheja Centre, 214, Nariman Point, Mumbai-400 021, Ph- 022 – 6611 1700, Extn. - 704 www.ashikagroup.com
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Pristine Asset Quality
The management has committed towards improving the asset
quality of the company. Specially, under the new management
since FY11, the asset quality has improved by multifold. Gross NPA
used to languish in the region of 1.6% in FY07 to 1.1% in FY11.
Thereafter, the asset quality improved consistently in each
successive year with Gross NPAs at 0.2% and nil Net NPAs as of
FY14. The improvement in the asset quality is due to higher
concentration of loan book (92% of loan book) towards retail
Individual Housing Loans. Moreover, out of the individual housing
loans 90% belong to salaried class.
Comfortable capital adequacy position
The capital adequacy position of Can Fin Homes has always been
comfortably above the statutory norm of 12% stipulated by
national housing bank (NHB) since FY07. The capital adequacy ratio
(CAR) for FY14 stands at 13.8%, comfortable but lower than the
high of 19% witnessed in FY11. The mild reduction in CAR is due
to high business growth within the same period and changes in the
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rate of provision for Standard Assets in respect of commercial real
estates.
Strong return ratios over the years
The HFC has been able to remarkably sustain return on assets
(ROA) near 1.5% over the years while maintaining return on equity
(ROE) of 13% or above, despite of that company being a consistent
dividend paying one. The net interest margin (NIM) has declined to
2.7% in FY14 from 3.3% in FY11, due to higher cost of funds. ROA
and ROE for FY14 stands at 1.5% & 17% respectively. In the recent
years, the company clocked the highest ROA of 1.9% in FY10 &
FY11. Thereafter, the focus of the company shifted to business
growth and aggressive branch expansion thus impacted the
operating expenses of the company as reflected by cost to income
from 22% in FY11 to 28% in FY14.
Housing sector in focus
With the economy bottoming, the housing sector is expected to
get a leg up from the pent up demand. With the improvement in
economic activities and lower interest rate scenario & higher
disposable income, the housing industry is expected to witness a
spurt in demand and it is a long term positive for the sector.
Further, there are expectations of incentives by the government in
the home finance segment in order to revive the sector.
1008, Raheja Centre, 214, Nariman Point, Mumbai-400 021, Ph- 022 – 6611 1700, Extn. - 704 www.ashikagroup.com
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Ashika Research - Equities
Key risks

Higher concentration (70% of loan book) in South India

Change in management will have a negative bearing on the
growth prospects for the company

Increase in interest rates in the economy & higher
competition to impact NIM adversely
Outlook & Valuation
Can Fin Homes is a strong play in the housing finance sector and
the company has achieved a five year CAGR of 26% in loan book.
The new management which took charge in FY11 has been
revolutionary and pressed for higher loan growth at a CAGR of
38% in a difficult economic scenario without compromising the
asset quality. The company has strong focus in South India,
particularly Bangalore, which has been blessed with stable demand
in real-estate markets. Besides, the company lends predominantly
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to individuals belonging to the salaried class, which has resulted in
spotless asset quality of the company over the years. With the new
government in power and the subsequent bottoming out of the
economy, the company is expected to witness a revival in demand
in housing sector. At the CMP, the scrip trades at P/B of 1.16x
FY16E book value & investors are advised to BUY the scrip for a
target price of Rs 500, implying an upside of 40%.
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1008, Raheja Centre, 214, Nariman Point, Mumbai-400 021, Ph- 022 – 6611 1700, Extn. - 704 www.ashikagroup.com
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