Canfin Homes Q1FY18 Concall Summary

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Financial highlights

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  • This quarter was one of the best quarters in terms of numbers i.e., the NIIs, the PBT, the PAT, the NIM, the ROA, the ROE all the numbers are best ever posted by CanFin.
  • In Q1 the loan book growth has been 23.5%, surpassing the 13,800 Crore loan book that was planned for Q1.
  • Earnings have increased by 29%, expenses have increased by 12% resulting in NII improvement by 34% to 123 Crores, which is a resultant of the loan book growth of 23.5% coupled with the cost of funds.
  • Cost of funds were down by 82 basis points yoy.
  • Yield on advances has dropped 32 basis points.
  • Margins have improved to 3.65% compared to 3.39% a year ago.
  • Margins have dropped 26 basis points sequentially compared to March 3.54% where it was 11 basis points, the margins have gone up.
  • Total income has gone up by 19% and expenses by 13%
  • Cost income ratio has added 34% to the NII growth.
  • Cost income ratio is registered to be best ever of 14.90 compared to 17.02 of Q4 and 17.8 for the previous Q1.
  • Operating profit are up by 37%, clocking 116.34 Cr
  • PBT has gone up by 42% at 111 Cr and the PAT is 71.22 Cr.
  • Sequentially, it is almost a bit above the Q4 of last financial year, considering yoy there is a 43% increase in PAT.
  • The ROA has gone up to 2.11%, crossing 2% mark for the first time, it was 1.84% in the corresponding quarter of previous year and it was 1.97% in March just below the 2% mark.
  • ROE has gone up at 25.54, with an increase of 3.88% compared to 21.66% to the previous year.
  • Capital adequacy is 19.17%, improved due to higher earnings being ploughed back and Tier I it is 16.7%.
  • Average business per branch and per employee has improved with per branch business going up to 102 Cr.
  • Currently business going up to 23.5% Cr, which was around 18.5 during the previous year at this time.
  • 100% of the book is backed by mortgage, so the decision to invoke the SARFAESI has been made.
  • Canfin primarily is into individual housing that is 88.5% is housing and around 11.5% is non-housing with the average ticket size continuing to be around 18 lakhs and 9 lakhs.
  • 95% of the loan approvals are in the income range of redefined affordable housing i.e. up to 18 lakhs annual income, in that up to 6 lakhs, the LIG segment constitutes around 53% and around 42% in MIG segment.
  • Disbursements compared to last year sequentially if you see Q4 and Q1 of current year, Q4 of last year the disbursements had slumped, for the quarter it had slumped to 3% yoy increase, Q4 of FY 2016 and Q4 of FY 2017 the growth was 3%, current year it is 10%, Q1 of FY2018 is up by 10% compared to Q1 of FY2017.
  • Loan book growth in Q4 FY2017 was negative 16% compared to Q4 FY2016, now the gap has been breached and there is a positive.
  • Sanctions and disbursements are both slow compared YoY is due to enactment of the RERA.
  • Q4 had partially faced impact of demonetization as there was two months moratorium given to the HFCs for the months of November and December.
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Asset Quality

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  • Asset quality continues to be top priority.
  • Q1 has witnessed some deferred impact of the two months moratorium and that was in November, December post demonetization with another big component that was Section 269ST regarding the 2 lakh limit on cash transaction.
  • Gross NPAs have gone to 0.38% despite all the impact of the things happening around
  • The changes during Q3 – Q4 of last year till Q1 the company has managed the gross NPA in terms of risk weight at 0.38%. It used to be 0.24% previously
  • Net NPA is 0.17% compared to 0.04 in previous June and the provision coverage is lower coming up at 55% in terms of NPAs cost.
  • The NPAs from 188 accounts is amounting to 29.5 Cr as in March for recovery in Q1 so it gives the company nine months period to get this account off the books.
  • Part of the accounts will be upgraded by recovery and part of the accounts are planned to be  knocked off and these accounts particularly where the overdue continues to be over 60 days and the cost of freezing these accounts standard comes up much higher compared to the earnings that is made from them.Blended Yield

Blended Yield

  • Overall yield of the company has been around 10.59% and only 10% of the incremental is for non-housing, and around 12.5% to 13% on non-housing.
  • This is the average of the entire book.
  • Rate of borrowing is on an average 7.84% compared to 8.65% in previous June, last financial year it was 8.35%, showing a substantial dip due to new base for Q1, it is 7.84% of the incremental cost of borrowings for CanFin.
  • The spreads have gone up from last year’s 2.61% to current spread which is 2.75%.
  • Marginal yield has come down from 10.96 to 10.59 and the cost has come down from 8.35 to 7.84. This is compared to the last full year and current year first quarter.

Disbursements and Sanctions 

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  • 7200 loans have been disbursed this quarter.
  • 95% of the sanctions qualify in the affordable segment.
  • Of the total housing, individual housing that has been lent, of which 95% is in the income range up to 18 lakhs and 53% is in the range of up to 6 lakhs that is it may be within the range of 3 to 6 lakhs.
  • CLSS has been applied wherever applicable as for CLSS income is not the only criteria.

Branch Expansion Strategy 

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  • Six branches and head offices have been added this quarter.
  • 11 branches and 10 satellite offices have already been approved which leaves six more satellite offices and five more branches to go.
  • 21 new outlets have been planned to be opened during the year out of which 10 have been opened in Q1 itself.
  • Cost to income ratio has dipped a little due to the above expansion strategy.
  • Stock split is linked to the postal ballot which is expected to be there in the Q3.

Interest rates

  • Interest rates for existing loans cannot be reduced as the interest rates have been allotted based on the risk rating, for which the borrower needs to pay the risk premium.
  • CanFin is the first HFC, which has gone for an annual resetting mode.
  • Interest rates will be reset annually based on the risk category.
  • The subsidy received through CLSS will be transferred to the customer’s account resulting in the reduction of loan amount and EMI.
  • Loan origination from resale and self-construction ranges from 9% to 12%.

Downloads

Canfin Q3FY17 Concall Summary

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Performance Highlights

Can Fin Homes Q3FY17 Performance
  •  Q3 FY 2017 is a perfect new year beginning for the company.Growth in outstanding Loan book is 28.2%
  • Revenues are gone up by 26%. Exp are around 20%. NII Grew 39% for the Quarter.PAT grew 41%
  • Fresh Sanctions are up by 43%. Disbursements are up by 31%
  • Impact of demo was not that much, except for in November
  • Lowering of cost of borrowing 9.1% Dec 2015 to 8.48% in Ded 2016
  • Spread has improved by 40 bps. 2.12 to 2.52
  • NIM stands at 3.5%
  • Per Branch business is stretching up to 100 crore per branch.
  • Cost to Income ratio has reduced by 180 bps. From 19% to  17.15%.
  • Priority is still on the salaried class. It constitutes 77% of the  total loan portfolio
  • Of the Portfolio, 88% is housing and 12% is  non-housing
  • For Canfin, the collections are done by banking medium so demonetisation has not affected much.
  • CP is 19% of the total borrowings.

    Asset Quality  

  • Net slippage is Rs. 31 Lakh for the Quarter on entire loan  book
  •  Gross NPA 0.24% vs 0.27% last year and Net NPA 0.01 vs 0.04% last year
  • PCR is 94%
  • CAR -18.76. Asset Quality has been good.
  • LTV in LAP Book is below 50%.Balance transfer cases are more in higher risk profile borrowers
  • Majority of the customers are long standing customers.
  • Current year 9 Months slippage is less than QlFY 16. So, asset Quality is getting maintained
  • Last year there was a writ e-off of 3 Cr. This year, there is no write -off

Marginal cost of funds

  •  Cost of Funds is 8.48%. Yield on advances is 11%
  • Banking portfolio is now repriced at a lower rate and the NCO is dependent on money market
  • Rates Cut will be passed on. Broadly, Margins are expected to be maintained

    Customer Addition:

    •  Things are improving on customer addition front
    • Average Ticket size is 18-20 Lakhs and LTV is 70%
    • Incremental age of borrowers is 40-41 years. This means that this could be the first house of the borrower and so the delinquency rates are lower.

     Benefit of Interest Subvention Scheme of the government

    • Average Ticket size in Metro cities is 30-35 Lakhs.
    • Average ticket size in non metro cities is 10 -15 Lakhs. This Segmentis roughly more than 50% of the total. This segment will benefit from Govt. Scheme
    • Overall the subvention is a very positive move.

     Prepayment trends due to competition

    • Company has a loyal base of customers
    • Even though Canfin is offering loans at higher rates compared to bank, still customers are there
    • This difference between lending rates has always been there. But Co. stays competitive and passes on the benefit as and when possible
    • Existing customers can avail of new (lower ) rate by paying interest differential amount, which is 15000 or 0.5%, whichever is lower
    • Prepayment rates on Housing loans is less than 17%

     Rate Cuts

    • Rate cut of 75 Bps is for new sanctions
    • The company feels that it is insulated from sharp rate cuts by banks. Even earlier, Canfin used to charge 40-50 Bps above the banks. And now the rates are even more competitive due to rate cut. So there is no customer behaviour change
    • Repricing of loans from banks has been done, but high cost NCDs  continue
    • Fee income and other income declined
    • When a rate cut happens in a Quarter, to compensate the interest differential, other income increases. Similar ly when there is no cut, other income remains normal
    • Also in this Quarter, there was festive offer.
    • By the same logic, Q4 may see a jump in other  income

     Growth

    • Growth should be better from now as rate has been cut. Rate cut matters to low income salaried class
    • During November, there was a dip in growth, but enquiries have improved
    • No branch additions planned for this year, but satellite centres will be converted

     Sourcing and Borrowing Mix

    • Direct and DSA (Direct Selling agents) both account for  50:50
    • But Incrementally, Direct is expected to improve to 55%
    • In Metros, DSA contribution is higher at 50-60%
    • Commission is 0.35% for housing 0.5% for non  housing
    • Borrowing mix - 50% is from banking and NHB, and 48% from money market
    • Geo graphical mix - 74% South. Karnataka is 46%, TN is 16%, Telengana is 18% and Kerela is 2.5%. 20% is from NCR and some from Gujarat

    Disbursements and Yield

    • Compared to December-16, there is a growth rate of 25% in disbursements
    • The company follows Risk based pricing. The lowest risk category borrowers get best pricing
    • Avg.Yield for 9 months is 9.75% for Home loans and 13.5% for non home loans
    • Conversion of loans or re-pricing generally takes time
    • The company has not reduced rates in Dec. Quarter. Now it is reducing 25 bps for the housing segment.
    • Rural housing is 12% of the loan book
    • As of now there is less supply in housing sector and with government also providing benefits to developers in this segment, supply is expected to pick up
    • The company does not finance where the project is not  ready

     Employees

    • Average age of employees is 32-33
    • Average age of Incremental borrowers is 40-41. Average age of Top management is 50

     Borrowing Cost

    •  Incremental Borrowing cost will be lower . It stands at 8.48% vs 8.75% in March. And for companies like Canfin, where there is no casa deposit, it will help

    Guidance

    • The Company continues to have a guidance of 13500 Cr Loan book For FY 2017
    • Q4 and the coming year is expected to be better for generally all the housing finance companies
    • Satellite branches are converted to loan centres. Co. will add 10 more each quarter.