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29 Dec

Disbursement growth is expected to be 38-40% higher than in FY19- Can Fin Homes

Update on the Indian Equity Market:

On Wednesday, the benchmark index NIFTY 50 closed at 17,213 (-0.1%), 20 points lower. Among the sectoral indices, HEALTH CARE (+1.9%), PHARMA (+1.7%) and AUTO (+0.4%) were the gainers and METAL (-1%), MEDIA (-0.9%), PSU BANK (-0.7%) led the losers. Among the NIFTY50 components, EICHERMOT (+3.4%), BAJAJAUTO (+2.9%), and SUNPHARMA (+2.3%) were the top gainers while SBIN (-1.7%), ITC(-1.6%) and COALINDIA (-1.5%) led the laggards.

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.”

 

 

 

 

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21 Sep

Government announcements for housing sector: Steps in the right direction

Dated: 18th September 2019

Update on the Indian Market:

Nifty closed in the red for the 2nd day on Tuesday. It ended 1.7% lower at 10,817 levels. Depreciating Rupee and rising tensions from the attack on Saudi Arabia oil supplies may be the reasons for this decline. Leading the decline were NIFTY Auto (-3.8%), NIFTY Realty (-3.7%) and NIFTY PSU Banks (-3.7%). None of the NIFTY sectoral indices closed positive. Hero Motocorp (-6.3%), Tata Motors (-4.9%), Tata steel (-4.9%) were the worst-performing stocks in NIFTY50 while GAIL (+1.9%), Titan (+0.9%) and HUL (+0.9%) were the top performers.

We offer research services on the Indian equity market and plan to offer investment advice shortly. For information on our services, please visit our website http://www.assetmultiplier.co.in/ 

Government announcements for housing sector: Steps in the right direction

Excerpts from an interview with Mr Keki Mistry, vice chairman and CEO of HDFC, printed in Mint dated 16th September 2019

·        The government announced setting up of Rs 10,000 cr fund for real estate projects requiring last-mile funding. Another Rs 10,000 cr is expected to come from the private sector.

·        The step is in the right direction and would help huge number of projects that are stuck due to the lack of last-minute funding.

·        Such a professionally managed fund would help the real estate issue to a large extent.

·        The fund is for projects in the middle income and affordable housing category that are 60% complete, are non-NPA and non-NCLT.

·        Today, if the project is NPA and requires the last 10% funding, nobody will be willing to put that 10% as the loan will be straightway classified as NPA from day one. That is why the fund eligibility might be for non-NPA projects. But on the other side, a project that is stuck is stuck because of lack of funds. If there is a lack of money, the builder may not have enough to repay loan instalments. So there is a chance that the project will become NPA. This needs to be looked at more carefully.

·        Non- NPA qualification is hard to understand. IF the builder is not able to complete a project, it is most likely already classified as NPA. There are many projects that have not yet slipped into NPAs and where last-mile funding would help.  

·        The fund could be operational in CY2019 itself, if not certainly in CY20.

·        Combining the government and private monies, a fund of Rs 20,000 cr if additionally leveraged 0.3 or 0.4 times, around Rs 26,000 cr will be available. This amount can take care of a huge number of projects.

·        Many projects will have a small last-mile funding requirement of Rs 50-60-80 cr. With Rs 20,000 cr plus leverage, many such projects can be helped.

·        Government has also proposed to relax External Commercial Borrowing (ECB) guidelines for affordable housing. This route could be a little cheaper than domestic borrowing. It could be a little cheaper than domestic borrowing. More importantly, it will open a new source of funding for some of the companies.

Consensus estimates (Source: Marketscreener website):

·        The share price on 05-09-2019 was Rs 1,996/- per share. It was trading at a P/B of 4.2x/3.8x its book value per share estimates of Rs 479/520 for FY20E/FY21E respectively. The consensus price target was Rs2355 implying P/B target of 4.9x/4.5x for FY20E/FY21E respectively.

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.”

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09 Sep

Excerpts of an interview with HDFC Chairman Mr Deepak Parekh published in Mint dated 4th September 2019

Dated: 6th September 2019

Update on Indian market: Nifty ended almost flat on Thursday (+0.03%). Within NIFTY stocks, top performers were Tata Motors (+8.1%), Coal India (+7.3%) and ONGC (+5.3%) and worst performers were HDFC (-2.8%), Indiabulls Housing (-2.3%) and ICICI Bank (-2.2%). Among the sectoral indices, best performers were Metal (+2.6%), Auto (+2.1%) and Media (+1.6%). Worst performing sectors were Realty (-1.8%), financial services (-1.2%) and Pvt Banks (-0.8%). RBI has mandated linking of housing and auto loan rates to the repo rate or other external benchmarks 1st October onward. Stock prices of HFCs (Housing Finance Companies) were down owing to the fear that HFCs will have to reduce their lending rates to remain competitive, effectively putting pressure on NIMs (Net Interest Margin). Auto stocks reacted positively to the same as lower borrowing costs to the customer can boost demand for vehicles.

Excerpts of an interview with HDFC Chairman Mr Deepak Parekh published in Mint dated 4th September 2019

·        In HDFC’s core business of housing finance, massive growth is seen in affordable housing. HDFC has launched a dozen projects in the last 3 months across Indian cities. Apartments that fit in the Pradhan Mantri Awas Yojana (PMAY) are selling fast. 70-80% is sold on the launch day.

·        Commercial real estate especially for IT back-office sector is also booming.

·        Real estate is in bad shape for homes that are larger and unaffordable.

·        The spiral down has continued after demonetization. The developers need help as without them there is no supply. There is a massive amount of unsold inventory and lack of fresh lending to the developers.

·        Regulators have to look at developers differently in terms of NPA recognition. Even if the developer is not able to build a phase due to demand shortage and is not able to repay the loan, he is sitting on the value in the form of land. When the demand picks up, the value will materialize.

·        50% of incomplete apartments need last-mile funding where 80%-90% work is complete. That should be done on an urgency basis. This will also boost confidence on the street. Currently, people prefer to buy a finished home rather than under-construction property as many people have booked under-construction flats and are still waiting. A solution could be a stressed asset fund initiated by National Housing Bank (NHB).

·        When IL&FS went down, it did not impact the Indian financial system. India has a strong financial base and a couple of players collapsing is not going to have a big impact.

·        Interest rate action helps in case of a slowdown but it is not the ultimate reason for the slowdown to go away. Self-confidence and confidence in buyers is required. India is a consumption-oriented economy and one or two-quarters slowdown is just part of the game. Even the auto industry has had phenomenal sales for many years and a slowdown for a few quarters will not have much impact.

·        The feeling is that slowdown will be short-lived. Good weather, upcoming festive season and easy availability of credit will cause spending.              

·        Consumption as a % of GDP is very low in India, less than half of China. So that has to grow. Even if there is a global slowdown, it is not so in India.

·        Ease of doing business in India has to improve. Large funds of billions of dollars have not yet invested long-term money in India. India specific funds have come in but global funds, sovereign wealth funds have just started looking at India. Still, massive amounts of investments can be expected from Australia, Canada and Japan. The sovereign wealth funds are underinvested in India but are looking at viable companies, good promoters and good track record.

Consensus estimates (Source: Marketscreener website):

·        The share price on 05-09-2019 was Rs 2,044/- per share. It was trading at a P/B of 4.2x/3.9x its book value per share estimates of Rs 479/521 for FY20E/FY21E respectively.

·        The consensus price target is at Rs 2,361/- implying P/B of 4.5x for FY21E BVPS of Rs 521.

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