BUY Can Fin homes for a target of 200 - GEPL

CFHL operates is highly competitive business, where company needs to be very prompt in sanction & disbursement of loans, needs to be competitive in terms of interest rates to be offered and all this to be integrated with the quality of loan. At CFHL 85%* of Loans approved are disbursed, which indicates efficiency of the company to compete with its peers. (*calculated on cumulative figure of last 5 financial year)

Company's outstanding loan amounts to Rs.26.74 bn. at the end of FY2012, however Loan disbursement in FY2012 stood at Rs.5.89 bn. which CFHL expects to grow by 80% in FY13-14 to Rs.15 bn.

Company reported its Net NPA as NIL, where as its Gross NPA amounts to 0.7% of its total Loan outstanding in FY12, which shows its high quality of loan portfolio. Company also provides 100% Provision on its doubtful loan.

National Housing Board (NHB) has cut its lending rate by 50 bps in September, and expected to cut more. Such cooling off of interest rate would directly reduce re-finance cost of CFHL and will further strengthen NII margin of the company results in higher profitability.

CFHL, been paying constant dividend ranging from 20% to 25% on its face value, since 1999. This enhances investor's confidence in the company.

Bangalore is a growing city and it is at that stage where large parcels of land in the growth corridors are being lapped up. It is expected that in Bangalore scarcity of land starts to show which might lead to massive price appreciations in couple of years. In such situation, where company has marked its presence with 10 branches will be prima-facie in an advantageous position to witness growth both in terms of value & volume.

With reforms expected from the government for the real estate sector, we believe anticipate growth in tier I and tier II cities in coming time. With efficient management of CFHL, we believe it will be one of the major beneficiaries of this expected boom. The company's efforts to increase in branches network and diversifying in personal loan segment will further speed-up the growth engine of the company.

CFHL trades at cheapest of all housing finance companies at 0.65x FY13E price to book and P/E of 5.4x of FY13E EPS, which is the cheapest of all housing finance companies. We recommend a BUY rating on the stock with a target price of Rs200 at which the exit P/BV multiple is 1.1x and exit P/E multiple stands at 7.4x.

Source : Equity Bulls

Keywords