While the public sector banks are suffering due to the concerns around high non-performing assets (NPAs), private banks and selected non-banking financial companies (NBFCs) have become the recent favorites among the investors.

In the NBFCs space, we are bullish on Can Fin Homes (“Can Fin Homes” or the “Company”). The bullish view comes on the back of robust growth of more than 29 % in loans, sanctions and disbursements. Besides, the management has also given strong guidance of more than 26 % increase in loan book in FY 2017.

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.

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Product Portfolio

Housing Loans Products ·         Individual housing loans 

·         loans under urban housing

·         Gruhalakshmi rural housing loans

·         Composite loans

 Non-Housing Loans Products ·         Site loans 

·         Mortgage loans/ loans against property

·         Loans for commercial property

·         Personal loans

·         Commercial housing loans and other deposit products

INVESTMENT RATIONALE

Healthy Asset Quality

The Company has the best asset quality. Gross Non-Performing Assets (“GNPAs”) for FY 2016 stood at 0.19 % of gross advances, and Net Non-Performing Assets (“NNPAs”) continues to be ZERO since 2011 as the Company conservatively holds an NPA provision coverage ratio at 100%. In the last few years, there have been many challenges with respect to NPAs for the financial sector due to bad economic and business environment. But Can Fin Home’s has maintained healthy asset quality primarily due to strong risk management practices. The Company also does not have any much exposure to developer/builder loans, which has also helped it to maintain a healthy asset quality.

Robust Loan Growth

Over the last five years (i.e. 2011-2016), loan books have grown at a CAGR of 31.82%. For the same period, profit after tax grew at a CAGR of 29.13 %. 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 2016.

The Company has been outpacing peers for loan book and earnings growth over the last three years.

Focus on Branch Expansion

Can Fin Homes has pan India presence with 167 branches and 50 satellite offices in over 19 states/union territories. 70% of the company’s branches are located in south India. The Company continues to expand its branches across all regions in India. The Company has already opened 7 branches & 20 Satellite Offices as on April 21, 2016 and will open further in 8 locations during the FY 2017.

INVESTMENT CONCERNS

Geographical Concentration

Can Fin Homes has 70% exposure to southern states contribute approx. 80% of the loan book. Any adverse impact from politics, economic downturn, or natural calamities poses a risk to its business growth and asset quality.

Competition

Name Price Market Cap.
(Rs. cr.)
Revenue (Rs. Cr) Net Profit (Rs. Cr)
HDFC 1,251.85 198,291.00 30,905.12 7,093.10
Indiabulls Hsg 662.15 28,032.21 7,932.93 2,294.12
LIC Housing Fin 511.85 25,831.18 12,396.15 1,660.79
GRUH Finance 290.80 10,582.47 1,275.40 243.58
Dewan Housing 232.60 7,283.30 7,311.83 729.20
Can Fin Homes 1,417.75 3,775.65 1,083.54 157.11
Repco Home 564.35 3,530.28 880.68 150.08
GIC Housing Fin 273.00 1,470.13 876.37 124.50

*Price & Mkt Cap as on 18 Nov