Equity | India | NBFC

Sales Note
CMP (`) 141.30 Potential upside 41.54%

Can Fin Homes Ltd.

Target (`) 200 Absolute Rating BUY

November 16, 2012

Company Snapshot
Can Fin Homes Limited (CFHL), Non banking Financial Company (NBFC), is a close affiliate of Canara Bank (Public Sector Bank), with the bank owning over 42% of the total shareholding in the company, which forms a strong foundation for the company. CFHL incorporated over 25 years ago to promote HOME OWNERSHIP program in association with UTI, HDFC and NHB. CFHLs loan portfolio is comprised of Housing as well as Non-housing loans such as Personalloan, Mortgage loan, Project loan, Child education loan etc.

Market Info (as on November 16, 2012)

BSE Sensex Nifty S&P 18,309 5,574

Stock Detail
BSE Group BSE Code NSE Code Bloomberg Code Market Cap (`bn) Free Float (%) 52wk Hi/Lo Avg. Daily Volume (NSE) Face Value / Div. per share (`) Shares Outstanding (mn) B 511196 CANFINHOME CANF IN 2.87 60% 147.00 / 87.50 75704 10.00 / 3.00 20.4

Investment Rationale
Strong Loan Book & financials 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)

Companys outstanding loan amounts to `26.74 bn. at the end of FY2012, however Loan disbursement in FY2012 stood at `5.89 bn. which CFHL expects to grow by 80% in FY13-14 to `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. Dividend Policy CFHL, been paying constant dividend ranging from 20% to 25% on its face value, since 1999. This enhances investors confidence in the company. Expanding branch network & loan portfolio CFHL operates through web of 65 branches spread across India. However company intends to increase its branch network in order to cater large section of customers for Housing & Nonhousing Loans. Company had added 18 branches during last Financial Year where economy was dark clouded, shows its strength. Company is also exploring some potential locations to achieve its target branch network of 70 by March2013. It is also noted that with increase in number of branches & CFHLs guidance to such new branches regarding marketing strategy, new branches are also likely to contribute in quarters to come. The company is well established player in Tier 1 & Tier 2 cities for Home loan business and now company plans to focus on Non-housing loans (Such as Personal Loan) to retail, which are thought riskier but also highly profitable as compared to housing loans to the company.

Shareholding Pattern
Promoters 42.38 FIIs 0.62 DII 4.42 Others 52.58

Financial Snapshot
Y/E March Interest Income Net Int. Income % Change Pre-Pro. Profit % Change PAT % Change EPS FY11 2263 721 15% 603 4% 420 7% 20.5 FY12 2793 837 16% 717 19% 438 4% 21.4

(`mn)
FY13E 3350 985 18% 805 13% 560 21% 27.3

Share Price Performance

160 150 140 130 120 110 100 90 80 Apr-12 Jul-12 Aug-12 Feb-12 Nov-11 Dec-11 Jan-12 Oct-12 Jun-12 May-12 Nov-12 Mar-12 Sep-12

Light After dark night for real-estate sector: Urbanization and growth in household income will be a major driver in the real estate sales growth, results in expected demand of Real estate to grow by CAGR of 19% till FY15. CFHL being Housing Finance company, expects housing loan to grew by 20% forward. The company is well established player in Tier 1 & Tier 2 cities for Home loan business, 43% of branches are located in such areas where prices of the real-estates are on the rising streak e.g. Bangalore, Chennai, Hyderabad, Mumbai, NCR region.

Can Fin Homes

BSE SENSEX

Rel. Perf. CanFinHm (%) SENSEX (%)

1Mth 27.0 4.6

3 Mths 41.9 13.1

6Mths 36.1 9.4

1Yr 45.1 (9.1)

Source: Company data, GEPL Capital Research

Analyst
Gaurav Oza

+91-22- 6614 2696 gaurav@geplcapital.com

GEPL Capital Research

Equity | India | NBFC

Can Fin Homes Ltd.

Bangalore Fuel to growth

November 16, 2012

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. Efficient Risk Management CFHL operates in the financing activity, where in re-financing becomes an issue for NBFCs. However being public undertaking CFHL does not face such problem of capital infusion. It funds its re-financing needs from National Housing Banks (NHB) & from Banks (short term loan), which are closely affiliated to the company. Generally advances are for long term (10-15 years) with an early repayment option, which generally does not correlate with companies Long-term borrowing/Loan (5-7 years) & repayment plan, hence adequate risk mitigation strategies are required. As a part of it CFHL follows strict risk mitigation by Internal Control system & periodical review of companys operation in terms of its Liquidity risk, Interest rate fluctuation risk(on variable loan) as well as quality control measures by introducing Tri- monthly review of all branches which helps new branches to break-even as early possible. In addition to all above controls, being public undertaking company follows all the required rules & regulation formulated by regulatory time to time.

Risk

Peer Comparison
Name Can Fin Home Dewan Housing LIC Housing GRUH Finance GIC Housing CMP (`) No of Shares (mn) Market Cap (` mn) EPS (FY12) P/E (x) BVS (SEP 2012) P/BV (X), Sep,2012 Dividend Yield %

Being public undertaking, management of the company changes very frequently. CFHL are closely integrated with real-estate industry & Interest rate cycle hence any negative force on such things may adversely affect the company.

144 200 255 205 125

20.49 117.08 504.66 177.85 53.85

2,949.84 23,415.40 1,28,689.07 36,459.25 6,731.38

21.40 28.97 19.20 6.44 10.96

6.73 6.90 13.28 31.81 11.41

182.33 185.26 121.92 25.10 100.72

0.79 1.08 2.09 8.17 1.24

2.08% 2.75% 1.41% 1.12% 3.60%

Source: Company data, GEPL Capital Research

GEPL Capital Research| Sales Note

Equity | India | NBFC

Can Fin Homes Ltd.

Valuations

November 16, 2012

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 companys efforts to increase in branches network and diversifying in personal loan segment will further speedup 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 `200 at which the exit P/BV multiple is 1.1x and exit P/E multiple stands at 7.4x. Key Ratios Y/E March GNPA (` mn) NNPA (` mn) GNPA % to Advance CAR % ROA % (Total Assets) Interest Exp/ Interest Income (%)
Source: Company data, GEPL Capital Research

FY11 235 0 1.1 17.4 1.9 68

FY12 190 0 0.7 19.14 1.6 70

FY13E 217 0 0.7 14 2 70

GEPL Capital Research| Sales Note

Equity | India | NBFC

Can Fin Homes Ltd.

NOTES

November 16, 2012

GEPL CAPITAL Pvt Ltd Reg Office: D-21 Dhanraj mahal, CSM Marg, Colaba, Mumbai 400001

Analyst Certification The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed and that they have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report: Name : Gaurav Oza Sector : NBFC

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