Can Fin Homes Equity Research

Date of Research-16-06-2016

Price-Rs. 1,177.00

About the Company

Can Fin Home is one of the top players in the housing finance sector operating with ZERO NPAs for the last 6 years. The Company provides a range of loan products, housing loans as well as non-housing loans. The Company has dominance in South, where 70 % of its branches are located. For FY 2016, Can Fin Homes reported a healthy 29% loan growth (compared to 41 % for FY 2015) despite sluggish economy and lower loan off-take in both wholesale and retail segments. Net Profit for the same period grew 82 %. Net Interest Income grew by 69 % in FY 2015.

Key Financial Figures

Standalone(Rs. Cr)
ParticularsFY 2013FY 2014FY 2015FY 2016FY 2017
Total Income from Operations392.70578.00817.031,083.541,353.12 
Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit)357.88531.65751.481,000.811,257.92  
Finance Costs283.01422.77610.29743.48884.03  
Other income– 
PAT (before Minority Interest and share of Associates)51.3575.9486.24157.11235.26  

Profitability Analysis

ParticularsFY 2013FY 2014FY 2015FY 2016FY 2017
Operating Profit Margin Ratio91.1391.9891.9892.3692.96
Net Profit Margin Ratio13.0813.1410.5614.5017.39 

Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies. 

Key Balance Sheet Figures

Sources of Funds / Liabilities(Rs. Cr)
ParticularsFY 2012FY 2013FY 2014FY 2015FY 2016
Share Capital20.49  20.4920.4926.6226.62
Share application money0.480.48
Reserves & Surplus327.09371.68431.82744.86851.42
Net worth (shareholders funds)347.57392.17452.30771.96878.52
Long term borrowings1,859.25  2,899.26 4,328.795,457.266,965.45
Current liabilities494.71  743.571,089.792,029.572,824.10
Other long term liabilities and provisions14.6232.00  40.7653.9469.66
Deferred Tax Liabilities21.6156.87
Total Liabilities2,716.15 4,067.005,911.658,334.3510,794.59


Application of Funds / Assets(Rs. Cr)
ParticularsFY 2012FY 2013FY 2014FY 2015FY 2016
Fixed Assets3.246.507.829.288.89
Noncurrent Investments16.9415.9414.9414.9414.94
Current Asset54.4543.9253.41103.17154.07
Long term advances and other noncurrent assets2,635.863,995.485,830.618,206.9810,616.70
Deferred Tax Assets5.654.874.86
Total Asset2,716.154,067.005,911.658,334.3510,794.59

Efficiency Analysis

ParticularsFY 2012FY 2013FY 2014FY 2015FY 2016

Return on Capital Employed (ROCE) measures a company’s profitability from its overall operations by calculating the return generated on the total capital invested in the business (i.e. equity + debt). Return on Equity (ROE) or Return on Net Worth (RONW) measures the amount of profit which the company generates on money invested by the equity shareholders. In short, ROE draws attention to the return generated by the shareholders on their investment in the business. Together these ratios can be used in comparing the profitability of the company with other companies in the same industry. 

Valuation Analysis

ParticularsFY 2013FY 2014FY 2015FY 2016FY 2017
Total Income from Operations (Rs. Cr.)392.70578.00817.031,083.541,353.12 
Growth (%)36.91 %47.18 %41.35 %32.61 %24.88 % 
PAT (Rs. Cr.)51.3575.9486.24157.11235.26  
Growth (%)0.50 %47.88 %13.56 %82.17 %49.74 % 
Earning Per Share – Basic (Rs. )26.4037.0041.4559.0288.38
Earning Per Share – Diluted (Rs. )26.4037.0041.4559.0288.38
Price to Earnings4.804.7214.6219.5635.29

Dividend History

The Company has maintained an average dividend yield of 2.53 % over the last 5 financial years.

Liquidity and Credit Analysis

Current Ratio

Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook. Can Fin Home’s average current ratio over the last 4 financial years has been 0.07 times which is fine for a company which is primarily in the business of finance and lending.

Long term Debt to Equity Ratio

Companies operating with high long term debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations.

Can Fin Home’s average long term debt equity ratio over the 4 financial years has been 7.35 times which is optimal for the company which is in the business of finance and lending.

Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations.

Can Fin Home’s average interest coverage ratio over the last 5 financial years has been 1.29 times which is optimal for a Company which is in the business of finance and lending.

Ownership pattern

In its latest stock exchange filing dated 31 March 2017, Can Fin Homes reported a promoter holding of 30.57 %. Large promoter holding indicates conviction and sincerity of the promoters. We believe that a greater than 35 % promoter holding offers safety to the retail investors.

At the same time, institutional holding in the Company stood at 0.74 % (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.

Researched by: Puneet Singh