Can Fin Homes - Centrum Wealth Research
Rajesh Desai
(See attached file: Centrum Wealth - Can Fin Homes - Q3FY17 Result Update - 24 January 2017.pdf)
Can Fin Homes Ltd
Outperformer
Target Price: Rs2,024
CMP: Rs1,708
Upside: 18.5%
Healthy growth continues, despite demonetization
Can Fin Homes Ltd (CFHL) continued to report a healthy set of numbers despite Nov’16 being a weaker month due demonetization. The net interest income (NII) grew 39.1% YoY backed by 28.2% loan growth. Pre-provisioning profit (PPP) and net profit grew by 33.8% and 41.3%, respectively. Net interest margin (NIM) improved 32bps YoY and 5bps QoQ to 3.49%. Asset quality remained stable with gross non-performing assets (NPAs) at 0.24%, down 1bp QoQ.
Recommendation: Despite the impact of demonetization CFHL continued its robust growth trajectory along with better operating efficiency (cost-income - CI% at ~16%) and healthy asset quality. Going ahead, with government’s emphasis on affordable housing segment through its “Housing for All by 2022” program, CFHL remains positive on its growth prospects and has maintained its guidance of over 30% loan growth (Rs13,500 crore by end FY17). The management has also maintained its “Vision 2020” and is on track to achieve the same, on the back of which we expect the return ratios of CFHL to improve to 1.9% RoA and 25.5% RoE by FY18E, by when we expect the company to raise equity for funding its future loan growth. We maintain Ouperformer rating, valuing it at 4x its FY18E ABV.
Q3FY17 Result Summary
Y/E Mar (Rs Cr) | Q3FY17 | Q3FY16 | YoY % | Q2FY17 | QoQ % |
NII | 110 | 79 | 39.1 | 101 | 9.2 |
PPP | 100 | 75 | 33.8 | 93 | 7.1 |
PAT | 60 | 42 | 41.3 | 55 | 8.2 |
NIM* (%) | 3.49 | 3.17 | 32bps | 3.44 | 5bps |
Gross NPA (%) | 0.24 | 0.27 | -3bps | 0.25 | -1bps |
Net NPA (%) | 0.01 | 0.04 | -3bps | 0.03 | -2bps |
Source: Company, Centrum Wealth Research
Loan growth remains unaffected by ‘demon’: The loan book witnessed 28% YoY growth to Rs12,688 crore despite some slowdown in Nov’16. Further, the Q4 numbers are expected to be accelerated as there were few disbursement delays in Q3 that may come in Jan-Feb’17. CFHL, on the back of the upcoming incremental opportunity in the low cost housing segment and its current healthy growth rate, maintains its target of Rs35,000 crore loan book by 2020. Over FY16-18E, we expect loan book to witness 30% CAGR to Rs23,135 crore.
Better operating efficiency to improve return ratios: The cost-income ratio (CI%) of CFHL improved 219bps YoY and 126bps QoQ to 16.25%. The business per branch also improved to Rs100 crore at the end of Q3, up 7.1% QoQ and up 11% YoY. Going ahead, CFHL is expected to continue to maintain low CI% along with improving it’s per branch efficiency. As a result, the return ratios are expected to improve further to 1.9% RoA and 25.5% RoE by end of FY18E.
Asset quality to remain healthy: Asset quality remained stable despite stress across BFSI space with gross NPAs down 1bp QoQ to 0.24% and net NPAs at 0.01%. With consistent decline in slippages, LTV (loan-to-value) for loan against property below 50% and maximum focus on housing loans to the salaried class, CFHL is expected to maintain its healthy asset quality with gross NPAs below 25bps and ‘nil’ net NPAs (with 100% provisioning at year end).
Risk factors: a) Higher concentration in south (76% of business); b) Increase in borrowing cost; c) Increase in competition from banks and other NBFCs.
Regards,
Centrum Wealth Research