Underpriced Housing NBFC – Canfin Homes

Vision of Canara Bank on the relevanceof having an exclusive outfit for providing, housing finance at a time wheninstitutional finance was not flowing tohousing sector to the required extent andbanks had constraints in locking up fundsin long term housing finance, saw thebirth of CanFin Homes Ltd. Since then,as the first bank sponsored Housing FinanceCompany, CFHL has emerged asone of the leading players in the country’s home finance segment.

Established by Canara Bank in association with reputed financial institutions including HDFC,UTI, CHFL has made a steady growth in the housing finance segment through over 40 branches spread across the country. National Housing Bank is also an important equity holder in CHFL.

CHFL has track record of consistently good performance. For year ended March 2010, although its income has come down (due to lower interest rates) to 216.44cr as against 222.91 in previous year, its PAT has gone up sharply to 39.19 cr as against 31.52 cr in previous year. As on 31st March 2010, net NPA of CFHL is zero although loan exposure is the tune of Rs 2100 crores. Compared to 2008-09, sanctions and disbursements of loans nearly doubled during 2009-10. Inter-Canfin Homes Ltd.

est reduction benefit received was passed on the borrowers not only on freshloans but onold loans as well. Gross NPA of CFHL is mere 1.06%. It has declared 20% dividend even as CAR was 16.9% while it was 15.68% in previous year.

VALUATIONS :- CFHL is the cheapest scrip in housing finance segment.

1. Stock is trading at 4.97XFy10 EPS

2. Stock is available at 4.32XFy11E

Eps 3. Stock is trading at 0.70XFy10 Book Value 4. Stock is available at .60XFy11E Book Value PE Ratio of GIC Housing finance is above 8 and that of Gruh Finance is more than 16. Considering strong pedigree, excellent and consistent past track record, decent book value, CFHL is definitely underpriced when Sensex is ruling above 17,000 and peer group companies have much much higher valuations.

Even if CFHL gets modest PE Ratio of 7, its share price should be Rs 133/ based upon past year earnings and Rs 155/ based upon FY11E Eps. Although considering high book value (GIC is trading at 1.50XBook Value and GRUH Finance at 3.70XBook Value), share price of CFHL should be Rs 175-200/ in less than 1 year. Investors may remember that in these columns same writer had recommended LIC Housing Finanace @ Rs 190/ in year 2009 which has appreciated 500% in 15 months

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