Buy Can Fin Homes; target of Rs 432: CD Equisearch

CD Equisearch's research report on Can Fin Homes

According to report by ICRA, a credit rating firm, HFCs are expected to witness strong growth in current fiscal, thanks to GOI��s thrust on affordable housing, recovery in the real estate market and stabilization of business post GST. It foresees overall market growth of 17-19% in FY19 (up by 16% in FY18). It expects overall gross NPAs for HFCs to remain in the range of 1.2-1.5% (1.1% in FY18 and 0.8% in FY17). As per its estimates, adequate internal capital generation and comfortable access to capital would support gearing levels for HFCs to remain at ~8.5-9 times over the medium term. The incremental capital requirement is expected to be Rs 7,700-12,000 crore for the next three years.

Outlook
With aim to keep its niche in affordable low-ticket size housing loans intact, we estimate a healthy growth in Can Fin��s loan book, which should increase its net profits at a CAGR of 19.3% over the next two years. Yet, increased competition from banks with their lower retail lending rates might impact its business. Failure to lend more to non-salaried segment (currently 26.7% of the loan portfolio) might slow down its NII growth. In view of our past valuation, we recommend buying the stock with target price of Rs 432 (previous target Rs 644) based on 2.5x FY20e BV for a period of 9-12 months.

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