Wednesday, April 29, 2015

“Can Fin Homes Can Keep Growing at 30-35%” - Exclusive Interview with C Ilango, Managing Director


C Ilango, Managing Director, Can Fin Homes Ltd.
By Tony J, Associate Editor:
Wednesday, 29th April 2015, 10:00 AM IST:

StockExplain interviews C Ilango, Managing Director, Can Fin Homes Ltd., which has been an outstanding growth story during the last four fiscals in the high-potential housing finance sector.

Can Fin Homes closed yesterday’s trade at 676.40 in NSE, and opened today’s trade at 679.95. It has corrected by around 20% from its 52-Week and All Time High of Rs. 839, owing to the deep correction in Indian markets.

Can Fin Homes, promoted and sponsored by Canara Bank, has been one of the most outperforming HFC stocks during the past 24 months. It has risen from a two-year low of Rs. 103.80 to a recent all-time high of Rs. 839, which makes it a clear 8X multi-bagger within just two years.

The out-performance during this period also reveals Can Fin Homes’ intrinsic strength as the stock had started rallying much before the euphoria about a new majority government coming into power at Delhi began, or the prospects of interest-rate cuts, had set in.

In fact, the rally in Can Fin Homes had started even earlier, starting from around January of 2012. Triggering the improvement in the stock was the improving fundamental performance brought about under the leadership of C Ilango who was appointed as the new Managing Director in April 2011.

Counting from that period, the stock has appreciated by more than 10 times, from Rs. 80 level to over Rs. 800, that is, within less than 3.5 years.

The fundamental performance fuelling the rally during this period - FY’12 to FY’15 - has been equally powerful. Can Fin Homes’ loan book grew 21% in FY’12, 50% in FY’13, and 46% in FY’14. 

And by the end of the third-quarter of FY’15 itself, the loan book size had reached Rs. 7634.47 crore from Rs. 5844 crore for the full previous fiscal, which is a 31% growth already with one more quarter’s results to be announced.

What is even more impressive with regard to this growth at Can Fin Homes is its quality. For the last five fiscals, Net Non Performing Assets (NNPAs) has been 0% or nil at this housing finance company, which is a feat not many peer HFCs can claim to have. And its Gross NPAs have been steadily brought down from 1.1% in FY’11 to just 0.21% by December 2014.

There are many reasons contributing to this high quality growth, apart from the management quality. 87% of its loans are retail individual housing loans, and 84% of its housing loans are to the salaried class. Can Fin Homes’ average housing loan ticket size is Rs. only 13.39 lakhs, and its loan book is dominated by the less-volatile and demand-driven South Indian market which accounts for 73.62% of the loan book.

Can Fin Homes also shines when it comes to return ratios. It’s Return on Equity (RoE) has increased from 13% in FY’12 to 17% in FY’14, and its Return on Assets (RoA) stood at 1.5% in FY’14.

The housing finance company has also successfully concluded a Rights Issue that takes care of its funding requirement till the end of calendar year 2017.

C Ilango, Managing Director of Can Fin Homes Ltd answers StockExplain’s queries on the future prospects of Can Fin Homes and housing finance sector:

The capital market has been relatively more upbeat about the prospects of Housing Finance Companies (HFCs) like Can Fin Homes, than about more diversified NBFCs or even banks. Obviously, the opportunity size or the potential size of the housing finance sector is one reason for this positive outlook. How will you size up the sector in terms of the potential volume as well as growth prospects?

The mortgage market in India is relatively small in comparison with our GDP. In developed nations, the mortgage market is so huge that it has reached a size that is 80-90% of the GDP’s size. In India, the mortgage market is still only 9% in comparison with our GDP size. This indicates the enormous possibilities in India’s housing finance sector. The rapid urbanization, increase in incomes, fiscal incentives for owning a house through loan, and the shortage of approximately 19 million housing units only strengthens this positive outlook.

Apart from the opportunity size, what are the unique advantages of being in this specialized sector - housing finance - rather than being a diversified NBFC, or even a niche NBFC in another field (like in gold lending or auto finance)?

In any asset financing business, most of the assets financed are depreciating in nature, in value terms. In case of housing finance, the assets are appreciating in nature, thereby giving the unique advantage of ever increasing margin and least chances of default. Secondly, owning a home is one of the primary needs of the mankind. And thirdly, in India, people tend to identify themselves with the house and place where they live and thereby a high sentimental value and attachment is associated with the housing asset than to any other asset.

The relatively smaller HFCs have been playing to their unique advantages or focus areas like people with low credit score, rural low-income earners, urban low-income earners, the un-banked, or salaried class, or some other focus. Is it correct to say that Can Fin Homes’ primary focus area has been government or PSU employees? What percentage of your customers are from the public sector, approximately?

As such there is no declared focus area, but Can Fin Homes is traditionally a preferred choice of Government and PSU employees, probably because of the ‘connect’ factor they experience with us.

Another strength of Can Fin Homes has been the low NPA levels. What are your current and projected NPA levels, and what has been your strategy for out-performance on this front?

As on 31/12/14, our Gross NPA is 0.21% and our Net NPA has been nil, and we are confident of retaining or bettering our asset quality in future too. Our policies for this outperformance in asset quality include robust credit underwriting, timely follow-up, and the friendly relationships with our customers.

A common challenge that HFCs cite these days has been loan attrition to banks. Is Can Fin Homes troubled to an extent by this phenomenon, and how are you battling it?

We agree with your viewpoint. However, it is not a new phenomenon. Housing finance as a product is not sold on the basis of price (ROI) alone, but more with service factors, where we are way ahead of the banks. We counter this competition with increased reach and better Turnaround Time (TAT). 

There is an often discussed feeling in the market that banks are focusing on retail segments like housing finance now as corporate credit off-take has failed to take off so far, and that when corporate credit demand improves, banks will shift focus to these larger multi-crore loans as before, leaving HFCs with more opportunity. How do you assess this view?

We agree with this viewpoint.

As you are aware, many banks which have an HFC subsidiary or associate, operate in synergy, with the bank passing over the housing loan to the HFC subsidiary or associate for a commission. Do you have any similar arrangement with your promoter Canara Bank?

There is no agreement regarding sharing or passing of business with Canara Bank, and on that front we act independently.

Can Fin Homes’ fortunes have taken a dramatic turnaround since you assumed office. However, this dependency on a high-performance leader is sometimes cited by analysts as a key risk with Can Fin Homes’ future performance. How do you view this, and has Can Fin Homes reached a stage of growth, where future leaders are already being groomed for this role either in Can Fin itself or in the parent bank?

Can Fin Homes’ Board of Directors consists of highly experienced professionals and their collective wisdom takes care of such anticipated fear or risk, if any.

With regard to the successful Rights Issue, in what timeframe do you plan to utilize the funds? What is the loan book growth rate that you expect, and when will you be in need of similar funds again?

Taking into account that the economy will behave in a stable and predictable manner, it is not difficult to grow at a rate of 30%. That means we may need fund infusion during September-to-December of 2017, depending on the growth of the business.

Despite the presence of a high-profile fund like Infosys co-founder NR Narayana Murthy’s Catamaran, the stock of Can Fin Homes is still under-owned by FIIs and DIIs. Are you planning any specific steps for more institutional participation?

As on today, there is no such plan. However, we continue to meet investors as well as analysts, both domestic and international, to exchange viewpoints. 

As competition in the housing finance sector intensifies, what all will you consider as the unique selling points of Can Fin Homes, as applicable to prospective customers? And from a shareholder perspective, what all will you consider as Can Fin’s USPs?

There are many USPs from a customer viewpoint, of which I will mention around three factors. Firstly, Can Fin Homes follows ethical, transparent, and time-tested practices that results in good and efficient service. Secondly, we have industry-leading Turnaround Time (TAT), with sanctions happening within 7 days. Thirdly, being sponsored by Canara Bank, we combine the safety of public sector and the efficiency of private sector. 

And from a shareholder perspective, what all will you consider as Can Fin’s USPs?

Can Fin Homes can deliver a topline growth at the rate of 30-35% with matching bottomline expansion. We have a committed field-level task force led by branch heads to take care of this future business growth. Our superior TAT helps us to to keep up the momentum and business expansion. Can Fin Homes has robust credit underwriting resulting in highest asset quality, with GNPA below 0.25% and net NPA being nil. And we have a highly experienced professional board that ensures established systems, procedures, and policies.

All smaller HFCs have huge room to grow in this country. What all will constitute your growth strategies for Can Fin Homes to carve out a larger market share? As part of your leadership, do you instill in your team that hunger for growth that is more often seen in the private sector?

As I mentioned before, being a private sector company sponsored by a large PSU bank, we combine the safety of public sector and efficiency of private sector. We are charting our future growth through expanding our pan India presence by way of branch expansion as well as by matching the market demand by introducing tailor-made products to suit the demand. Our employees are continuously trained through meetings, conferences, and specific training programs to enhance their capabilities and performance. Can Fin Homes also recruits new generation workforce by offering them attractive remuneration packages and high scope for career growth.

(Price when posted: Rs. 717)