Canfin Homes reported a 41% growth in net profit after tax in the third quarter to December driven by expansion in margins and stable asset quality.
The housing finance arm of Canara Bank reported a net profit of Rs 107 crore in the quarter ended December 31, 2019, compared to Rs 76 crore a year ago.
It has witnessed a significant amount of margin expansion despite the rating downgrade maintained low funding cost.
Net interest income the difference between interest earned and interest expended grew 25% to Rs 177 crore against Rs 142 crore. The company has maintained a margin of 3% over the past few quarters.
India Ratings had downgraded the rating on CanFin Homes to AA AAA in December since Canara Bank was scouting for partners to sell its stake in the venture and it could have an adverse impact on the company’s borrowing.
The rating firm has said the company borrows around 50% of funds from banks. It gets 13% funding from National Housing Bank, 18% from non-convertible debentures and 15% from commercial papers with public deposits at 2% is a smaller share.
In the last 10 years, Canfin Home has given over 29 times returns to its shareholders.
Its strategy to focus on affordable home loans has yielded positive results. The non-home component is hardly 6%, while 94% is home including top-up of 5% which is nothing but home loans.
The HFCs borrower profile consists of 70% salaried and 30% are self-employed.
Canfin Homes is looking at a Rs 40,000 crore loan book size by FY2022. It plans to raise Rs 1,000 crore through qualified institutional placement.
Increased credit flow and stimulus package for the real estate developers in the coming budget will lend a helping hand to the beleaguered sector and in turn to housing financing companies such as Canfin Homes.
Net net the performance of the company in these challenging times is quite commendable. It has ensured that asset quality remains intact despite challenges and liquidity crunch in the NBFC segment.
Also, the sale of a stake in Can Fin Homes is still on as the management was not able to finalize a buyer for a strategic stake sale for the second time.
Overall we believe that despite this sale not happening now, the long term prospects of this business look strong as the company has a strong growing HFC book and minimal asset quality. Hence going ahead it is sure to get a decent valuation premium when the deal is finally closed.
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