Disbursement growth is expected to be 38-40% higher than in FY19- Can Fin Homes
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Excerpts of an interview with Girish Kousgi, MD and CEO of CAN FIN HOMES LIMITED, on CNBC TV18 on 6th December and 27th December 2021:
- The real estate industry’s sentiment is extremely positive, owing to low property prices, lower mortgage rates, and increased affordability. With economic activity rising up and ample liquidity in the market, the company is optimistic of industry’s overall health and improvement.
- The management feels the new covid variant, Omicron, is not as dangerous as the preceding variations since the fatality rate is lower. On the demand side, the firm anticipates good results in the 3QFY22E, and the trend is projected to continue.
- The restructured book expanded by Rs6500 million in 3QFY22E. The firm expects roughly 7% of restructured book to flow into stage 3 in 3QFY22E and 4QFY22E, which is approximately Rs 450 million, and has established a provision of Rs 650 mn against this amount.
- Aside from the NPA pool, the company expects to recover roughly Rs 550-600 million, thus when looking at NPAs altogether, management believes it would remain very steady.
- The excess provision, which can be utilised to satisfy the RBI’s new NPA rules for NBFCs, has been exhausted. The company will continue to provide provisions based on the quarterly requirement.
- Because of the RBI’s new policy guidelines, there will be a significant impact on the asset quality and gross NPA levels in the industry as a whole, particularly in the commercial vehicle, MFI, and unsecured pool sectors. Because the EMI begins at the end of the month, the impact on Can fin is likely to be limited. For recovery, an NPA pool has been designed and hence NPAs are expected to remain constant in the next quarters.
- Almost 75% of loans are extended to salaried class. Even in the affordable housing segment, demand has increased. 3QFY22 is looking extremely well in terms of demand, which will continue in the next quarters notwithstanding the impact of Omicron.
- For FY22E, disbursement growth is estimated to be 38-40% higher than in FY19; on a steady-state basis, the company intends to expand at a rate of 18-20% on both book and disbursement growth. Because demand is high and growth is robust, sequential growth is estimated to be approximately 4-5 percent.
- The average loan ticket size stands at Rs 21 lakh, up from Rs 18 lakh a few quarters ago, thanks to the company’s clear focus on the high-value salaried segment, which contributed to the growth in ticket size.
- The demand is geographically diverse and all the segments are performing well. In terms of profile, self-employed / non-professionals had a slightly lower response for loan demand.
- The salaried class and the self-employed class used to contribute 70% and 30% to the total loan book respectively. However, the contribution of the salaried class to the total loan book has increased to 74%. It may take another three to four quarters for the self-employment sector to recover to 30% contribution levels. The loan collection efficiency has increased compared to pre-covid levels.
Asset Multiplier Comments
- 75% of Can Fin’s customers being salaried individuals, and the company being backed by strong brand of Canara Bank, we believe these factors will work favourably for its growth in the near term.
- We expect disbursements in 2HFY22 to be better than H1, and its margins to remain stable at the current levels.
Consensus Estimate: (Source: market screener and Tikr website)
- The closing price of Can Fin Homes was ₹ 555/- as of 29-December-2021. It traded at 2.7x/2.1x/1.8x the BVPS estimates of ₹ 222/264/308/- for FY22E/FY23E/FY24E respectively.
- The consensus target price of ₹ 760/- implies a P/B Multiple of 2.8x on FY24E BVPS of ₹ 270/-
Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”
