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CanFin Homes (Buy)
CMP: ₹322.5
Target: ₹417
Liquidity crunch has crimped credit growth for housing finance companies and is unlikely to improve much in FY20.
The stock of CanFin Homes currently trades around 2.6x FY19 BV (12.8x FY19e EPS of ₹25.02) and 2.1x FY20 BV (10.7x FY20e EPS of ₹29.85). Given the recent scenario of NBFC sector, we have cut our previous fiscal’s earnings by 5.8 per cent (EPS of ₹25.02 versus earlier estimate of ₹26.55) and current fiscal’s earnings by 0.2 per cent (EPS of ₹29.85 vs earlier estimate of ₹29.92).
Net interest income (NII) growth would slow down to 5.3 per cent for FY19, but pick up to 21.2 per cent in FY20. Rising competition from banks and liquidity crisis would hold NIMs (net interest margins) in the range of 3.2-3.3 per cent in FY19 and FY20, respectively.
Although it has been trying to diversify its regional presence to address markets in several cities, it still derives most of its business (over 72 per cent of its loan book) from south India, where any slowdown impacts its business growth, as witnessed in the last two fiscals. Deteriorating asset quality with gross and net NPA of 0.7 per cent and 0.5 per cent respectively cannot be overlooked either. Weighing the odds, we recommend buying the stock with target price of ₹417 (previous target ₹432) based on 2.8x FY20e BV for a period of 9-12 months.
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