Portfolio

Braving the odds: Banking on the affordable home segment - Can Fin Homes

Radhika Merwin | Updated on January 24, 2018 Published on July 12, 2015

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Indian companies stumbled through FY 15, with sharp deterioration in performance in the second half. While revenue for CNX 500 companies contracted by 2.9 per cent in the six months to March 2015, earnings fell 25 per cent. But there were some companies that proved their mettle by recording strong numbers in this period.

A healthy growth in the home finance segment and strong regional presence have kept Can Fin Homes, a niche player in the affordable housing finance segment, in good stead.

The company’s profit zoomed 20.6 per cent in the second half of 2014-15, from a modest 6 per cent growth in the first half, on the back of robust growth in its core net interest income. Whilst the company’s loan growth has been on a strong wicket through 2014-15, (40-44 per cent YoY growth every quarter), the incremental decline in cost of borrowings in the second half of 2014-15 has led to an increase in spread (return on loans less cost on borrowings). The net interest income thus grew by a higher 46 per cent during the October 2014-March 2015 period in comparison to 17 per cent in the six-month period ending September 2014.

The share of high-cost bank loans in the company’s funding mix declined substantially from 44 per cent in 2013-14 to 31 per cent in 2014-15. Instead, the company upped its share in low-cost funding options such as debentures and commercial papers. A well diversified funding mix and benign interest rate environment will continue to aid margins.

Can Fin Homes, promoted by Canara Bank which owns 43.4 per cent stake in the company, has seen its loan book grow by almost four times since March 2011 (when the turnaround began), thanks to its strong focus on the low-cost housing segment and aggressive branch expansion.

Over the last four years, the company has added 76 branches. Can Fin has created a niche for itself by offering low-ticket loans — average loan size is ₹18 lakh. The four southern states constitute 74 per cent of its loan book.

Continuing its splendid run for the third consecutive year, the company grew its loan book by 41 per cent in 2014-15. Despite its aggressive growth the company has been able to maintain a good asset quality by focussing on the less risky retail loans, which constitutes 86 per cent of loans.

The company’s gross non-performing assets were 0.17 per cent of loans in 2014-15.

With signs of revival in the economy, growth in the demand for housing is expected to increase steadily. The government’s ‘Housing for All by 2022’, a scheme promoting affordable housing for the poor in urban areas, opens up more opportunities for housing finance companies such as Can Fin that provide small-ticket home loans to low-income group. Trading at 2.2 times its one year forward book, the stock is attractively priced when compared to its peers such as Repco Home Finance (4.5 times), LIC Housing Finance (2.5 times) and Gruh Finance (10.2 times).

Published on July 12, 2015
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