Buy Can Fin Homes - Initiating Coverage - Motilal Oswal

We recommend to BUY CAN FIN HOMES(Can Fin) with a 12 months price target of Rs.230, valuing it at 8X P/E and 1.2x P/BV on FY13E estimated earnings.

Signs of Growth in business:

CanFin delivered highest ever disbursement growth of 82% in FY12 vis a vis 10 year CAGR of 9%. During H1FY13 the company grew its disbursement by 50%+yoy. The management has indicated that it plans to grow disbursement by 70%+ during FY13. Management's intention of growing CanFin's business is also visible from surge in number of branches after FY11. During the last 18 months company has opened 22 new branches vis a vis no branch addition from 1998 till 2011. Disbursement growth also translated into net profit growth of ~40% during H2FY12 and H1FY13.

Improvement in return ratios:

Reduction in cost income ratio primarily due to improvement in operating leverage will lead to improvement in RoE from 13% to 18% in FY14E

Bangalore's realty boom to benefit:

Bangalore has become the biggest realty market in India, where realty volume in FY12 reached 41mn sft*, surpassing that of Mumbai and Pune for the first time. Can Fin, due to its large presence in Bangalore (16% of total Branches), will be a natural beneficiary of this realty boom in Bangalore. (* Source: Liases Fores)

Undemanding Valuations

Can Fin trades at 0.6x/3.5x of FY13E BV/EPS, which is the cheapest of all housing finance companies. Even laggards like GIC Housing Finance trades at better valuations. Further it offers a dividend yield of 3% on FY13E earnings. We believe there is a high probability of significant rerating of valuations during the next 12 months primarily due to improving growth. Even under very sluggish operating performance (10 year CAGR of 8% in PAT vis a vis market leader's growth of 22% during the same period), CanFin's stock has delivered compounded return of 17% over a period of 10 years. Recommend BUY with a target of Rs.230 (1.2xFY13E BV, 8x FY13E EPS) in 12 months.

Source : Equity Bulls

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