Initiating Coverage
CanFin Homes
Buy
Target Price: Rs240
CMP: Rs163
Upside: 47%
Catch it young
Can Fin, a retail focussed HFC boasting robust RoA (10yr avg of 1.7%) and 0% NNPA, is ready to move to the next orbit. Renewed vigour to expand balancesheet and branches along with mammoth housing finance opportunity imply a compelling case for re-rating. At current valuations (0.8x FY14E ABV), Can Fin is the cheapest housing finance company and is trading at a steep discount to the next comparable peer (GIC Housing). We initiate coverage with Buy for an upside of 47% to fair value estimate of Rs240 (1.1x FY14E BV).
m Housing mortgage demand: dawn emerging – After the long consolidation phase (FY07-FY12) and penetration levels stable at 7.3%, we believe that the dark night is largely over as signs are emerging of the first crack of dawn. Combination of anticipated revival in economic activity, improved affordability (largely stable prices with rising disposable income) and expected easing in interest rates should help tap the latent demand for housing and housing finance. Moreover, HFCs remain solidly in place (vs banks & NBFCs) to gain from the anticipated opportunity.
m Shifting gears: In addition to the anticipated improvement in mortgage demand and the advantages of being an HFC, Can Fin is geared to boost its balancesheet growth. The company has added 25 branches to its network since March 2011 under the leadership of Mr C. Ilango, compared with no branch addition in the preceding decade. The fruits are already visible: sanctions and disbursements grew by 81.7% and 102.6% respectively in FY2012 with momentum continuing in FY2013 as well. The renewed vigour to expand the balancesheet and branch network should help the company sustain a loan book growth of ~35% over the medium term.
m Comfortable on profitability, quality and capital: Can Fin enjoys a comfortable position in terms of profitability, quality and capital. Average NIMs for the last decade comes at a respectable 3.0% and we expect this to broadly sustain over the next couple of years. Moreover, despite the challenging operating environment asset quality is strong with GNPA just below 1% while NNPA nil led by stringent credit appraisals (customer referrals preferred) and efficient recoveries. Further, the strong capital adequacy ratio (17.4% for FY12) adds to our comfort on Can Fin’s ability to grow the balancesheet at a strong pace.
m Mouth watering valuations for long term investors: Based on the above investment thesis, we expect the RoE to expand from 13.3% for FY2012 to 15.5% by FY14 led by optimization of leverage as RoA continues to remain robust. In the light of these, the current valuation (0.8x FY14E adjusted book value) appears extremely attractive on absolute basis and leaves significant scope of re-rating. Even on a relative basis, Can Fin’s current valuation is at ~ 30% discount to its nearest peer, GIC Housing Finance (1.1x FY2014E BV). We initiate coverage with BUY for an upside of 47% over an investment horizon of 12-15 months.
m Shifting gears: In addition to the anticipated improvement in mortgage demand and the advantages of being an HFC, Can Fin is geared to boost its balancesheet growth. The company has added 25 branches to its network since March 2011 under the leadership of Mr C. Ilango, compared with no branch addition in the preceding decade. The fruits are already visible: sanctions and disbursements grew by 81.7% and 102.6% respectively in FY2012 with momentum continuing in FY2013 as well. The renewed vigour to expand the balancesheet and branch network should help the company sustain a loan book growth of ~35% over the medium term.
m Comfortable on profitability, quality and capital: Can Fin enjoys a comfortable position in terms of profitability, quality and capital. Average NIMs for the last decade comes at a respectable 3.0% and we expect this to broadly sustain over the next couple of years. Moreover, despite the challenging operating environment asset quality is strong with GNPA just below 1% while NNPA nil led by stringent credit appraisals (customer referrals preferred) and efficient recoveries. Further, the strong capital adequacy ratio (17.4% for FY12) adds to our comfort on Can Fin’s ability to grow the balancesheet at a strong pace.
m Mouth watering valuations for long term investors: Based on the above investment thesis, we expect the RoE to expand from 13.3% for FY2012 to 15.5% by FY14 led by optimization of leverage as RoA continues to remain robust. In the light of these, the current valuation (0.8x FY14E adjusted book value) appears extremely attractive on absolute basis and leaves significant scope of re-rating. Even on a relative basis, Can Fin’s current valuation is at ~ 30% discount to its nearest peer, GIC Housing Finance (1.1x FY2014E BV). We initiate coverage with BUY for an upside of 47% over an investment horizon of 12-15 months.
No comments:
Post a Comment