*SMC Global Institutional Equities*
*CanFin Homes Ltd*
*Company Update: Q2 FY20*
*CMP: INR 406*
*Target Price: INR 512*
*Up Side: 26%*
*Rating: BUY*
NBFCs/HFCs in India are going through tough times, few of them going out of business. However, the ones which have managed their asset quality as well as risk properly have not only survived, rather improved in terms of business. Can Fin Homes Ltd (Can Fin) has been one of the most resilient HFCs in these tough times and we feel the space vacated by other HFCs will be captured by the company going ahead.
*Key Investment Rationale:*
· Expect 20% Loan CAGR over FY19-22, 25% delivered over FY14-19:
· Asset quality has been far resilient compared to other HFCs, don’t expect any pressure on book quality from here on:
· Cost of funds has been under control and fund raising should improve the NIM:
*Valuations & View:*
Canara Bank holds 29.99% stake in the HFC and the stake sale and its potential valuation is the biggest hangover on the stock. However, given the performance and B/S strength we feel it is worth taking a risk in the stock. The company’s 5 year average ROE of ~20% is commendable. At CMP the stock is trading at a 1.8x its FY22E BV, which is 18% discount to its 5 year average valuations of 2.2x BV. On P/E basis it is trading at 9.1x its FY22E EPS (21% discount to its 5 year average forward P/E of 11.5x). We applied both P/BV and P/E method to arrive at the targeted price of the stock, assigning 50% weight each. *Hence we recommend BUY on the stock with a target price of Rs 512, implying an upside of 26% from current levels.*
*Link To Report:*
*Research Analyst*
Siddharth Purohit