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We recommend ?BUY? on CAN FIN HOMES for a target of INR 620 – valuing the company at P/E 19x of FY19E Earning.
Investment Rationale:
- DYNAMIC TEAM: 626 members team with an average age of 33 years have led the company forward.
- EXTENSIVE NETWORK: Pan-India presence in 19 states catering to 88 cities is one of the key growth drivers. It increased its network by four times since 2010.
- TECHNOLOGICAL EXCELLENCE: Expansion has been streamlined with business operations, adding technological expertise.
- SEAMLESS EXPERIENCE: Loan disbursement to their customers at minimum time is essential to their business.
- GOVERNANCE: It aspire to be a company that is trusted and respected by all stakeholders, built around board-centric corporate governance system that ensures transparency and independent decision-making.
- REACH: Branch network has steadily extended across India?s largest and fastest-growing economic growth zones, thereby augmenting the prospects of its growth in the coming years.
Valuations And View:
Can Fin Homes Ltd is one of the top players in the housing finance sector, in the country today. The Company is offering a range of loan products, housing loans as well as non-housing loans, at competitive interest rates and designed to suit the needs of the customer. It is also one of the few housing finance institutions permitted by National Housing Bank, to accept deposits from public. We value Can Fin Homes at 19x FY19E EPS and recommend a BUY rating on the stock with a target price of INR 620 per share.
Risk & Concerns
- Credit Risk: Credit risk represents one of the biggest threats towards the sustainability and profitability of a financing company. The Company has in place a set of strategic credit policies, which help manage credit risks.
- Operational Risk: Any type of risk arising from any act relating to people, technology, infrastructure (including internal frauds) or some external factors, which can erode away the profit of a company is termed as an operational risk.
- Segment Risk: The internal dynamics of a company are in the hands of the company but the external dynamics which are dependent on a number of external factors are to a great extent out of the control of the company which may give rise to risks such as liquidity risk, interest rate risk and funding risks and any one of them can seriously dent the Company?s profitability.
Company Background
Can Fin Homes Ltd, set up under the sponsorship of Canara Bank, was incorporated in the year 1987, “The International Year of Shelter for the Homeless”. The main objective of setting up the company was, promoting home ownership and as well, increasing the housing stock in the country. It is the first housing company to be promoted by a nationalized bank in India.
Can Fin Homes Ltd is one of the top players in the housing finance sector, in the country today. The company has completed 29 successful years of operation in the field of home finance and has a renowned history of making profits and paying dividends continuously, since inception in 1987.
The company, as on date, is having 132 Branches, 20 Affordable Housing Loan Centres (AHLCs) & 20 Satellite Offices spread across various locations of the country and all these branches and satellite offices are linked to the Registered Office at Bangalore through a core banking platform. Being a south based company, 70% of its branches are located in southern India and the remaining 30% in Northern India.
The Company is a housing finance institution approved by National Housing Bank (NHB), the apex authority of housing in the country. It is a listed company and its shares are traded in all the major stock exchanges in the country. The Company is offering a range of loan products, housing loans as well as non-housing loans, at competitive interest rates and designed to suit the needs of the customer. It is also one of the few housing finance institutions permitted by National Housing Bank, to accept deposits from public. The deposit schemes of the company are rated “MAAA” by ICRA, which indicates highest credit quality and carries the lowest credit risk.
Industry Overview
During the year 2016-17, the Indian economy continued to consolidate its macroeconomic stability. Fiscal deficit and current account deficit as a percentage of GDP improved. The growth rate of the economy during the first half of the FY16-17 was estimated at 7.2%, making India one of the fastest growing major economies in the world.
With forward and backward linkages to several sectors and ancillary industries, the real estate sector is the second largest employer after agriculture sector and is slated to grow at 30% over the next decade. The real estate sector comprises of four sub-sectors ?housing, retail, hospitality, and commercial. The growth of this sector is complemented by growing increase in demand for office space and leading to rise in urban and suburban accommodation. The construction industry ranks third among the 14 major sectors in terms of direct, indirect and induced effects in all sectors of the economy.
