Can Fin Homes (CFHL) loan growth was lower at 18.7% y-o-y compared to its past growth and compared to peers at Rs 15,058 crore. While the housing finance industry was somewhat impacted by RERA, GST and demonetisation, CFHL’s loan growth seems to have got particularly affected more due to its higher concentration in South (76%) where it faced lower demand and increased competition. For Q3, the other fundamentals remained strong with 16% growth in net interest income, pre-provisioning profit up 23.7% led by lower opex and 34.4% increase in net profit. Asset quality weakened marginally with gross nonperforming assets (NPA) increasing 6bps q-o-q to 0.46% as on 31 December 2017.
Since our last update click here the stock of CHFL has corrected 6% mainly on concerns of slowing growth and higher NPAs. However, the pick-up in sanctions and disbursements gives hope for revival of historical growth trends. Also, the management in their quarterly call has indicated substantial improvement in loan growth in FY19E; however, they would remain cautious towards the quality of assets and have revised their FY18 loan book target downward at Rs 16,000 crore. We believe, going forward, with recoveries coming in and expected decline in slippages especially in the non-salaried space, the gross NPAs will decline to 0.29% by FY20E. We retain outperformer rating on the stock and arrive at a revised target price of Rs 487, valuing it at 4.2x its FY19E ABV.
Loan book grew 18.7% y-o-y to Rs 18,058 crore as on 31 December 2017. While this was the slowest pace of growth in several years, the management indicated that it was due to a lag effect of demonetisation and Rera. However, loan growth has already improved in states where Rera has stabilised and the same expected to improve from FY19 onwards with benefits of CLSS (Credit Linked Subsidy Scheme) coming into play.
With overall housing finance sector facing high competition, CFHL would adopt a cautious approach for increasing its loan book while still remaining growth oriented. CFHL has revised its FY18E loan book target downwards at Rs 16,000 crore.