Capital raise on cards to fund aggressive growth plans – Can Fin Homes

Update on the Indian Equity Market:

On Thursday, Nifty closed 1.5% lower at 14,325. Within NIFTY50, TATASTEEL (+2.9%), DRREDDY (+0.8%), and ICICIBANK (+0.6%) were top gainers, while IOC (-4.0%),MARUTI (-3.9%), and COALINDIA(-3.4%) were the top losing stocks. Among the sectoral indices, METAL (+0.02%) was the only gainer whileMEDIA (-3.1%), AUTO (-2.8%), and PSU BANK (-2.6%) ended with the most losses.

Capital raise on cards to fund aggressive growth plans – Can Fin Homes

Excerpts of an interview with Mr. Girish Kousgi, MD& CEO, Can Fin Homes (CANFINHOME), published on Economic times dated on 24^th March 2021:

• CANFINHOME witnessed a decline in loan book in the last couple quarters. This was due to repayments being higher than incremental disbursements. But December 2020 onward, the business is seeing a comeback.
• CANFINHOME’s disbursements have been strong since December 2020. December 2020 disbursements were equal to disbursements in October 2020 and November 2020 put together. February 2021 saw disbursements at an all-time high and March 2021 is expected to be even better.
• The demand for affordable housing revived couple months ago, while the non-affordable housing demand is back to 90% levels.
• Several financial institutions have been focusing on mortgage segment. CANFINHOME has changed its pricing strategy to retain customers and attract good customers.CANFINHOME has moderated its pricing to be at par with best banks in India. This will contribute to CANFINHOME’s expectation of 17-18% loan book growth in next few quarters.
• CANFINHOME’s aggressive pricing strategy will put a pressure on its margins. Mr Kousgi said the management will look for opportunities to improve yields where possible.
• CANFINHOME has a capital adequacy of 24% and leverage at 7.3x. While the capital adequacy is comfortable, Mr Kousgi says capital raise is shortly on the cards to fund aggressive growth plans for next 3-5 years.
• Kousgi does not anticipate any additional covid-19 related provision requirement.

 Asset Multiplier Comments:

• Demand for housing has seen a revival in last few months due to attractive prices, lower interest rates, lower stamp duties, and other benefits.
• In the covid-19 era, banks refrained from lending to the more risky segments such as unsecured consumer loans, SMEs, and vehicle finance.Several banks have ramped up their lending in the home loans space due to lack of other lending options. This has led to increased competition in the mortgage lending space.

Consensus Estimate (Source: investing. com and market screener websites)

• The closing price of CANFINHOMEwas ₹ 575 as of 25-March-2021. It traded at 3.0x/ 2.5x/ 2.1x the consensus BVPS estimate of ₹ 192/233/271 for FY21E/ FY22E/ FY23E respectively.
• The consensus target price of ₹ 593/- implies a PB multiple of 2.2x on FY23E BVPS of ₹271/-.

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