Canfin Homes Q1FY18 Concall Summary

Canfin.png

Financial highlights

Can fin Q1FY18 Financial Performance.png
  • 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.
Canfin Key Quarterly Data Q1FY18.png

Asset Quality

Canfin Asset Quality QoQ Q1FY18.png
  • 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 

Canfin Q1FY18 Lending Basket.png
  • 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 

Canfin Homes Q1FY18 Branch Network.png
  • 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

Indiabulls Q4FY17 Concall Summary

Indiabulls housing finance.png

Financial Highlights

IBHFL Q4FY17 Financial Performance.png
  • Balance Sheet crossed Rs 1 trillion
  • The company’s cost to income for fiscal 2017 is down to 13.3% from 14.3% last year & 20% in the very recent fiscal 2017
  • Loan book at the end of th fiscal 2017 stood at Rs 913.01 billion as compared to Rs 686.83 billion at the end of fiscal 2016 which is growth of 33%.
  • Cash in liquid investment stood at Rs 185 billion at the end of fiscal 2017
  • Asset mix at the end of 2017 split broadly into 56% home loans, 22% LAP, & 22% of corporate mortgage loans. Housing loan book increased from 56% of total loan assets up from 52% at the end of fiscal 2016. The company is confident to get 66% share of home loans within total loan asset book by fiscal 202
  • The company’s top line registered healthy growth with a revenue for fiscal 2017 at Rs 117.02 billion, a growth of 27%
  • The NII for fiscal 2017 stood at 47.68 billion, which is a growth of 25.7% over previous year. The NII for quarter four fiscal 2017 is at Rs. 13.60 billion as compared to quarter four of fiscal 2016 at Rs. 11.16 billion, which is a growth of approximately 22%
  • Fee income for the quarter is 193 crores.
  • At the end of fiscal year 2017, 51% of company’s liabilities were coming from bonds vs 38% in last fiscal year
  • The company expanded into Tier-II smart cities which are already accounting for 7% of home applications
  • The company’s Balance sheet stands at Rs 1.04 trillion, up about 36% over last year
  • Total loan assets are Rs 913 billion, up about 33% from 687 billion last year
  • Profit After Tax is at 29.06 billion, which is up 24% from corresponding last year
  • 36% Balance sheet growth versus 34% in fiscal year 2016
  • A growth of 33% in loan assets as against 31% growth last year
  • Government agencies and regulators are coordinating policies and aligning fiscal incentives to further the government's headline socioeconomic objective 2022.
  • For Q4FY17, the company did about 6000 crores of home loans, just under 2000 crores of LAP of corporate mortgage loans.
  • On an incremental basis home loans got just under 9%. LAP got 11.25%, & commercial loan 12%. On book basis the yields in home loans are at 9.7%, LAP at 13.5% & commercial loan at 14%
  • The company has a tax break on deferred tax asset side of roughly a little over Rs 100 crore approximately Rs 125 crores. The company has chosen to provide another Rs 125 crores this quarter. It has made total credit cost including write offs & provisions of Rs 311 crores
IBHFL Consistent Track record FY17.png

Disbursals

  • In fiscal 2017 company disbursed a total of 354.82 billion, a growth of 34.6% over disbursals last year of 263.58 billion
  • The breakup of disbursal are Rs 182.44 billion for home loans, Rs Rs.66.91 billion for LAP and Rs.105.47 billion for corporate mortgage loans
  • For Q4 disbursals were roughly Rs. 150 billion, breaking into Rs.64 billion for home loans, Rs. 20 billion for LAP and Rs.31 billion for commercial credit, besides one-time syndication type of arrangements for another Rs. 30 billion where company disbursed and got those assets refinanced within the quarter

Business Updates

  • The Company got included in Nifty 50 index
  • The Board has approved interim dividend of Rs 9 per share. By Q3 the company’s profits will be at a level where dividend proposal to the board will start increasing from Rs 9 per quarter.
  • The company launched India’s first digital e-home loan platform, it is accounting for 20% of new home lone sourcing
  • E-home loans is very advantageous. Home loans will generally have operating expenses which will be in the range of 70 basis points - 80 basis points on book basis and for this particular portfolio that number will be exactly half or less than half. Other costs like credit mistakes & frauds will be reduced. On per loan basis the company is saving 40-50 basis points as this product scales up it will give meaningful saving of almost 10-12 basis points savings on annualized basis. The e-home loans platform will continue to form biggest tool to become most convenient home loan provider in the country
  • Expansion into Tier II cities is also going well. The company now has 43 of new branches completely technology driven with online completion & transfer of the loan application files for credit underwriting in a hub & spoke model. 
  • Smart city home loans have grown 7% of new incremental home loan application. E-home loans now contribute to as much as 20% of incremental home loan applications
  • The company has been realigning emphasis towards more & more lease rent discounting type of structure. There are opportunities where the company get larger transaction of which the company can hold only small portion. So the company will do larger deal with back to back arrangement with a few banks & hold its portion & sell down the rest of it. These will largely be lease rent discounting transaction & would come in Q4 as the company is able to originate assets at a much faster pace, but company cannot hold all those assets, so it will share some of those assets with some of the other private banks
  • The market for such assets is approximately 3000 crores

Pradhan Mantri Awas Yojana

PMAY and Tax Incentive.png
  • Under pradhan Mantri Awas Yojana, coverage of housing has been expanded to mass market mid income housing for the first time. Households earning annually up to Rs 1.8 million per annum, purchasing their first house of upto 1185 sq feet with no bar or cap on the value of the house are now eligible for an upfront subsidy of as much as Rs 230000 towards their home loan. In addition to this the customer can also claim a deduction of Rs 4,00,000 from their taxable income against principal & interest component. All factored in the house of Rs. 3 million purchased a building alone of about Rs. 2.4 million, roughly 70% loan to value, which is a squarely mass-market mid-income affordable housing product, which only costs a borrower today 0.42% over the loan tenure, or 42 basis points. 
  • With the PMAY subsidy and tax savings factored in, the mid-income home loan borrowers only have to pay Rs. 2.43 million against a Rs. 2.4 million home loan over the life of the loan.
  • Compared with an effective home loan rate of 0.42%, the average rental yields for the top 12 cities is 3.2%. this is a tremendous incentive to purchase a house and make home ownership a very affordable proposition and much cheaper than renting
  • The company does more of mid income group lenders. Government has brought down the effective interest rate for the mid income group. Due to tax subsidies which is between 3% to 3.5% & there is convergence of tax subsidies & rental yield & the EMI. Even if Pradhan manri Yojana is taken away there is situation where EMI cheque & rental cheque are equal. With the Pradhan Mantri Yojana it is almost free to borrow at 42 basis points there is effectively no cost now. So company believes that there will be surge in demand. Many developers are focusing on bringing in more affordable housing & witnessing slowdown in premium housing segment
  • The company expects to see results of Pradhana Mantri Awas Yojana from Q2 of fiscal 2018

NPA

IBHFL Q4FY17 Asset Quality.png
  • NPA for over 22 quarters have remained within a range of 0.7% to 0.9% as was guided in 2010. 
  • Gross NPA’s were at 85 basis points & net NPA’s were 36 basis points
  • In computing net NPAs, only provisions against substandard assets are deducted from the gross NPA. Standard asset provisions and counter cyclical provisions of over Rs. 7 billion are not deducted while computing net NPAs.
  • The company has been prudent in provisioning approach & provisions which are approximately 150% of our gross NPA, with excess provisions running at Rs 3.74 billion
  • Total sub standard asset provision were about Rs 5 billion at the end of Q4 of fiscal 2017, general provisions and specific provisions splitting almost equally.
  • Floating provisions at Rs. 0.75 billion and standard provisions at Rs. 6.25 billion, totaling to Rs. 11.49 billion.

Borrowings  

  • Net leverage after deducting from total borrowings, cash and cash equivalents and liquid investments stood at 5.7 times.
  • Bank borrowings now form only 37% of our funding mix, down from 49% in March 2016
  • Capital markets sources along with ECBs and sell-downs have contributed to 96% of the incremental financing and company’s dependence on banks for growth of this year was only 4%. 51% of company’s funding now comes from bonds, up from only 38% at the end of fiscal 2016.
  • Spreads for quarter four fiscal 2017 expanded to Rs. 324 basis points on book basis, up from 318 basis points at the end of fiscal 2016. This is an increase, despite the perceived enhanced competition. The spread on an incremental basis is at 275 basis points, cost of funds on book basis was at 8.39% and dropped significantly as MCLR changes were passed on stock of bank loans as well as on the sold down book.
  • On an incremental basis the cost of funds is 7.83% for quarter four. Borrowing flexibility has ensured spread will sustain within the guided range of 300 basis points to 325 basis points on book and between 275 basis points and 300 basis points on incremental loans.
  • Net worth at the end of Q4 fiscal 2017 stood at Rs. 121.22 billion, up from Rs. 106.94 billion at the end of Q4 fiscal 2017, and Rs. 117.86 billion at the end of Q3 fiscal 2017.
  • Total capital adequacy adjusted for investments in mutual funds stood at 21% at the end of quarter four with Tier-I at over 17%.

Macro data

  • With the mortgage to GDP penetration of all of 9%, effective interest rates prior to the subsidy having dropped to between 3% and 3.5% and after the Pradhan Mantri Awas Yojana the effective interest rates have dropped to 0.42%.
  • With a capital base of over Rs. 12,000 crores and unique technology platform which company has built, company is very, very optimistic about continuing to grow profits by between 20% to 25% through fiscal 2017 and the book between 25% to 30%. Company reiterates that long-term guidance, which is book growth between 25% and 30% and growth across all other financial parameters between 20% and 25%
  • Company is very optimistic about 2020 & sees its balance sheet double double & also reach Rs 2 trillion mark with profits well above Rs 5500 crores. Off the balance sheet, approximately 66% will be home loans by 2020.
  • The company is hopeful that it will bring down cost which is currently 13% to single digit
  • So the goals of company are Rs. 2 trillion of balance sheet, over Rs. 5,500 crores of profit, 66% of home loans and single-digit cost to income ratio for 2020
  • RBI has expanded the definition of affordable housing & now all across all relevant agencies be it RBI, NHB, etc everyone has aligned & the subset of the policies that each of these departments have cover all the loans that Indiabulls Housing gives under the home loan program at a average ticket size of 2.4 million with an average income level of roughly Rs 1 million annualized
  • According to the RBI financial stability report & NPA numbers even housing loans they indicate in a number of roughly 170 basis points which mean that the 40% of the market which is housing finance companies reporting gross NPA loans of between 70-100 basis points , private banks being in the same ball park. There is a large part of the financial system which is running delinquencies within the housing loan portfolio of 300 basis points to 500 basis points. The overall corporate credit growth is not happening. The company has achieved its target of Rs 1 trillion of balance sheet size which was actually of 2018 target.  Therefore there is very robust demand & if credit growth remains as subdued that demand is only going to grow. The company does not have enough loan assets that it can potentially sell
  • LAP book is very sticky book given the fact that unlike home loans where there is no prepayment penalties, there are massive prepayment penalties of 3% to 5% in LAP book. And therefore, in a situation where interest rates are falling the average age of the LAP book actually does not change materially but the average age of the home loan book can potentially come down, if you are not continuously repricing your back book as well. So, in the case of home loans the gap would be a lot lesser because you have to continuously re-price back book in order to not allow a net outflow
  • The company believes that premium housing is on a decline & is not growing, whereas affordable housing is growing some where between 30-35% across housing sector. Government has given massive tax incentives to developers in Thane & Virar or Vasai where they are not paying corporate tax on such development. Mass housing is growing at a robust speed. 

RERA
 

  •  RERA is a very good development. The company is optimistic about RERA. According to the company commercial lending book is concerned it has concentrated book around a few largest developers in the country which are around 60-70 only.
  • Real estate brokers have divided their projects into 2 buckts – one which have not received occupancy certificate & another is which have all calculated their liabilities around it. 
  • The demand for construction finance is going to go up significantly. Fortunately, the regulation carves out forbearance for construction finance, both from Principal as well as interest servicing.
  • With RERA the company is confident that as both home loan provider & construction finance provider that the money which is being disbursed is used for only specific purposes & there are not only civil liabilities but also criminal liabilities which will arise if the money is misused. 
  • Portfolio quality will develop & it is a positive development

Capital Requirements

  • Government of India & RBI have included affordable housing in the automatic ECB route. The company will shortly raise as much as $750 million through the ECB route & another $500 million through masala bond route.
  • The company currently has $500 million on ECB outstanding & did refinancing of $350 million by Japanese, Taiwanese & other investors.
  • The company also had 25% institutions participate in last masala bond offering. So on ECBs the company will explore whether to do a offshore bond or a offshore loan structure
  • On masala bonds it is generally a bond which is a rupee-denominated bond, but company has opted the $1.2 billion which is permissible under both of these routes, & hopes  to get to at least $1 billion of overseas debt raise through both of these routes through the course of the year
  • Overall, company has to borrow approximately Rs. 50,000 crores for the year, of this Rs. 50,000 crores company is hopeful that at least 70% to 75% will come from the markets and the balance will come from banks in one form or the other
  • As the company surpassed the $ 1 trillion of balance sheet mark, it has slowed down the securitization this year
  • The company has sold down only 19% of securitization loan as against trend of 25%
  • So, next year onwards the company should be back to consuming approximately 1.5% to 2% of capital every year and strive to keep it at about 1.5% of capital every year
  • Its capital should therefore be next year and the year after also be about 15% of Tier-I and 18% of overall capital adequacy
  • The company cannot say whether it will raise a dollar bond, euro bond but through the offshore route it will look to raise about $1 trillion
  • The company has all large state & private insurance companies subscribing to its bond, including provident funds. It has a very vibrant bond borrowing program. Over 50% of borrowing are coming from the bond market route. Incrementally the company has grown its balance sheet & loan book over30%.
  • The capital employed with respect to oak north it is around 150 million
  • The company thinks that it does not need infusion of capital as it has people who run $90 billion market cap companies are extremely solid investors who can stand for the longest
  • The credit cost for the financial year will be 60-70 basis points
  • The company does not need to raise capital as it is well capitalized for next 2 financial years. It has growth of 25-30% & assuming that it securitizes between 20-25% of incremental loans. The company hardly has Tier II capital which is at 3%. Hence it is reasonably comfortable as far as capital is concerned.
  • The company want its Tier I capital to be at 15%
  • The company has a long term policy of maintaining liquidity at 20% of loan book. It has loan assets roughly of Rs 90000 crores & 20% of that is a little over Rs 18000 which is in liquid
  • The company believes that retail part of the business which is predominant part is distribution franchisee which is created over a period of time & any distruption in that will cause long term damage, therefore it is important to maintain liquidity. Also the feels that it has continued to disburse where others have shut shop which helped it accelerate the process of building on the distribution channel. A large amount of gains both in terms of acceptance of company’s bond as well as yield shrinkage that company had to do after it was upgraded to AAA by 2 rating agencies in 2014 was mainly due to its liquidity
  • Over the time the company borrowing program would evolve to 60% bonds, ECB’s, 20-25% bank borrowing, & 20% of securitization. The company is 47% right now between bank borrowing & securitization. Over a period of time it will drop to 40% & that 7-8% will go to Bonds & ECB. The migration will be in 3 years.

Future Guidance

  • For FY18, the balance sheet and the loan book will both grow between 25% to 30%, given the overall optimism
  • Similarly, for profit and NII and all of that, company is hopeful of keeping that between 20% and 25%, specifically for profits again to be at the more higher end of the range. On cost to income ratio, the target is to bring it down by roughly 70 basis points to 80 basis points and get it in the handle of 12.5%
  • The company has historically maintained a guidance that it will maintain spread of between 300 basis points to 325 basis points & on incremental basis between 275 basis points & 300 basis points.In this quarter, the company is on the higher end of the range as far as the overall book is concerned & at the lower end of the range as far as incremental business is concerned.
  • The company expects that over a period of 1-3 year when the company plans to increase borrowing program, it is at advantage of 50-60 points which at peak was above 100 basis point. Even if interest rates are to remain flat it can still bring down borrowing cost by 50-60 basis point. So, if home loans have to grow at roughly 1% or so per quarter and are to go in the direction that by March 2020 one is reasonably confident that book spreads will remain around 300 basis point
  • The company is positive about credit rating agencies & it feels that they are lot more optimistic about the macro which is always 70-80% of such decisions. They are very confident about macros of Indiabulls Housing.
  • Indiabulls home loan product will continue to grow well above 30%
  • For LAP market the company has concerns. Earlier it was heightened competition, then demonetization & then fear of small business owner defaulting.
  • The company believes that demonetization will help grow formal economy, which in turn will grow the demand for structured credit including lending from formal system is going to go up.
  • The company believes that the next couple of years around LAP & small business owner lending are going to be very robust period of lending.
  • The company’s long term NPA guidance is that it will operate between 70-90 basis points gross & 30-50 basis points of net. Currently it is at 85 basis points & 36 basis points & it will remain in this ballpark for 2-3 years. So, the guidance will be (+/-2) basis points for gross NPAs and (+/-2) basis points for net NPAs from where they are right now
  • GST will formalize the system further & that would work to the company’s advantage

Downloads

Canfin Q3FY17 Concall Summary

Canfin Homes Logo

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.

    DHFL Q3FY17 Concall Summary

    DHFL Logo

    Performance Highlights

     Results in INR Bn

    • Assets under Management grew by 19% YoY to Rs. 78,296 Cr as on 31st Dec, 2016
    • Total income increased 20 to 26% generating Rs. 2,367 Cr
    • NII increased to Rs 515 Cr growing by  21% Q3 in FY 16
    • NIM grew by 20 bps from 2.87% to 3.07% over Q3 FY 16
    • On Balance Sheet, loan book grew 17% over Q3 FY 16 to Rs. 68,961 Cr
    • PBT increased by 33% YoY to Rs. 372 Cr
    • PAT grew by 32% YoY to Rs. 245 Cr
    DHFL Q3FY17 Key Ratios
    • Cost income ratio has declined at 250 basis point to 23.77% in this quarter as compared to 26. 36% in corresponding quarter in FY 16
    • Gross NPA has declined to 0.95% over last qtr
    • Loan sanctions and disbursement were Rs. 9,459 cr. and Rs. 7,069 Cr increasing 2% and 7% respectively for the qtr
    • igh ticket segment has shown decline but affordable housing segment having average ticket size is not much affected
    • Disbursement in mortgage is moderate
    • Housing Loan- home loan disbursal was good in T2 and T3 cities
    • New incentive program introduced for 9 and 12 lacs in affordable housing is expected to report steady growth
    • Mortgage loan and working capital loan for SME is doing well
    • SME loan business is growing steadily for the past years
    • Hand in hand with mortgage loan business with having good share at 2 % margin here and there
    • The Company is focused on Opex rationalisation. The Company stands good in cost to income ratio.
    DHFL Q3FY17 Performance Highlights

    Impact of Demonetization

    • Disbursement dropped by 12% as compared to October, 2016. But there was a good bounce back in disbursement and collection in December which resulted in 10% growth in YoY disbursement. Q4 is expected to be good in terms of collection.
    • Demonetisation slowed the pace but the management is confident that the last quarter will show growth.
    • The Company takes demonetization as opportunity not constraint.
    • Transactions were slow in NCR and West India including Gujarat, parts of MP and Maharashtra as money flow was less

    LAP Portfolio

    • Massive rate cut by SBI and followed by others resulting yield to come down and reduction in cost of housing comes down. Still The Company manages NIMS to 295-305 basis point
    • In Q4, cost of borrowing trend is depicting low so, Q4 will be positive for business.
    • Instalment of home loan is 35 to 45 %.
    • Credit assessment on basis of reputed financials.
    • Surrogate program or liquid program in circulation till last year.
    • Home loan business grew at 15%, growth of 16 to 17% on LAP and overall retail to 15%.
    • The yield is 14-16 basis points, the Company insures to protect the margin.
    • Non- individual book has good margin.
    • The project finance business will be continuing.
    • The Company claims to have good pipeline in Q4

    Expense Ratio

    • Cost to income ratio at lowest level in last three years.
    • The company has not taken benefit from RBI relaxation of 30 days DPD, December collection were as usual showing 97-98% efficiency.
    • The company has branch centric model.
    • The company focuses on low-middle sector.
    • The target income ratio is 21-21.5%.
    • Branch segmentation is on size and market. It usually takes 3 yrs to bench mark

    Securitization

    • Total book is of Rs. 10,000 cr out of which 10 to 15% will be for securitization

     Office building liquidation/Ads and legal expenses

    • Office building will effect to get money back and it get delayed due to demonetization
    • Ads cost Rs. 25.84 Cr
    • Legal and professional charge- Rs 11 Cr

    Loan sanction increasing while Disbursement shows lower pace

    • Sanction increased marginal and also disbursement ratio was improved over October because the Company understands that the investors were looking for disbursement.
    • On month on month basis post Diwali, Nov over Oct was good.
    • Loan growth will be increasing by 17-19% as the Company had announced 9 lac and 12 lac program and also market size in 16 lac including metros to cover up

     Ticket Size

    • LAP- Rs. 40 to Rs 42 lacs
    • Project finance- Rs. 38 to Rs. 42 cr
    • Yield on LAP is at 13.55% - 13.75% while that on Project finance is at 15.45% - 16.2%

     Components for calculation of NII

    • Three components were included for calculating NII
      • MF operational income
      • Profit on interest
      • Dividend interest
    • Third party processing fee has been increased to 18 cr
    • Third party distribution income was Rs. 11 cr last qtr and same as this qtr.

    Utilisation of Rs. 14,000 cr of retail bond

    • Rs. 9,000cr was utilised in business including Rs. 1,300 as repayment of banks.
    • Investment in duration fund yielding of 9.35% on entire treasury book
    • In project financing Company increase 14 to 15% as of now it is 11%. 

    Non-Individual Asset movement

    • In non-individual loans the company collections are 97-98%, hence the is no stress  in this segment
    • Project and large financing is more profitable than individual loan business.

     Update on Preferential issue raising

    • Issuing preferential issue is to have more comfortable level of CAR and like to keep good Capital Adequacy ratio.

    SME lending borrowers

    • Professionals like Doctor for medical equipments, hospital equipments, plant & machinery, Educational institution to set up their infra.

    Future Outlook

    • Increasing focus on end customer segment and supply of affordable housing units
    • Faster growth envisaged in mortgage loan in metros and smaller cities
    • Company always want to grow loan to 16 to 18% on annual basis
    • Use of technology in improving process risk management and credit appraisal.
    • Affordable housing government programs on affordable housing has pushed in positive direction.
    • Regulation on Real Estate and demonetization will affect positively on affordable housing side and Company wants to become the financer of the first choice as per views pre and post demonetization Q3
    • Focus will be on growing home loan and project loan aggressively.
    • The Company plans to achieve target share of mortgages in double digit in overall loan book.
    • There is long term potential and focus is to create market dealership and offering customised product over a time.
    • Significant investment in last three years to drive network expansion and improve brand visibility.
    • Focus will be on efficiency improvement and technology led initiative.
    • Continued focus on LMI customer segment to drive growth.
    • Loan book growth to be driven by better utilisation of existing network