Can Fin Homes LTD Final

Can Fin Homes Ltd
BUY
Target Price 2,175 CMP 1,685 FY18E P/BV 4X
Index Details Can Fin Homes Ltd (CFHL) ticks all the boxes that investors expect
Sensex 27,252 from Housing Finance Companies. It has strong and rising NIMs,
Nifty 8,432 growing loan book with low risk, hungry management that sets
BSE 100 8,673 challenging targets for self and growth without dilution. We believe
Industry Housing Finance Can Fin can sustain high P/BV multiple and reward patient investors
as it chases target of loans of 350bn by FY20 from 135bn at end
Scrip Details
FY16. We initiate coverage on CFHL with BUY with a target price of
MktCap ( cr) 4,929
Rs.2,175, implying an upside of 29% from the CMP of Rs. 1,685.
BVPS () 330
O/s Shares (Cr) 2.6 We are optimistic about CFHLs prospects given that:
Av Vol 482.0
52 Week H/L 1,786/812 CFHL is the fastest growing HFC among listed companies with
Div Yield (%) 0.87 an expected loan growth of 28% CAGR over FY16-18E.
FVPS (`) 10.0
Can Fin has the best in class asset quality with GNPAs at
STOCK POINTER
Shareholding Pattern
0.25% in Q2FY17.
Shareholders %
Promoters 43.0 Non-housing book (LAP & others) is expected to grow at a
Public 57.0 faster rate of 42% in FY17. It was 12% of loan book at end FY16
Total 100.0 and will likely reach 16% in FY18.
CanFin vs. Sensex Low cost funding from NCD/CP/Public Deposits increased to
48% in Q2FY17 from 34% in FY16.
These strategic changes in the composition of loan book and

borrowings are expected to translate into expansion of
spreads from 2.33% in FY16 to 2.75% in FY18E.
We expect Can Fin to deliver PAT CAGR of 35% over FY16-18E.

At CMP of 1,685 the stock is trading at 4.3x and 3.5x its
estimated adjusted book value for FY17 and FY18 which is
attractively valued considering the valuations of its peers.
Key financials (Rs. in Cr)

Net Interest Non-Interest RoE RoA
Y/E Mar PAT EPS Adj.BV P/E(x) P/Adj.BV(x)
Income Income (%) (%)
2016 300.9 39.1 157.1 59.0 329.8 17.9 1.45 19.6 5.09
2017E 427.6 47.4 226.5 85.0 390.9 21.8 1.64 19.8 4.3
2018E 558.1 59.0 285.5 107.2 476.7 22.5 1.63 15.7 3.5
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-1- Thursday, 10 November, 2016
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
CONTENTS
A] Can Fin Homes Ltd
Company Background 3
Growth Drivers 4
SWOT Analysis 5
Investment Rationale 6
Key Risks 14
Financial Outlook 15
Valuation 16
Peer Comparison 19
Financials and Projections 20
B] Housing Finance Sector Overview
Housing Finance Sector in India 20

Housing demand scenario in India 21
Key Growth Drivers 24
Housing loan industry key players and who will win
in the long term? 29
Regulatory Framework 34
How to evaluate housing finance business? 35
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Company Background
Can Fin Homes Ltd (CHFL) is one of the large players in the housing
finance sector in India today. CHFL has completed 29 years of operation in the
field of home finance and has made profits and paid dividends continuously
since inception in 1987.
CHFL has 120 branches and 50 satellite offices spread across various locations
in India and all these branches and satellite offices are linked to the Registered
Office at Bangalore through a core banking platform. Since its parent bank has
strong roots in Southern India, 70% of CanFin branches are located in Southern
India and the remaining 30% in Northern India.
CHFL is a housing finance institution approved by National Housing Bank
(NHB), the apex authority of housing in India. CHFL is offering a range of loan
products, housing loans as well as non-housing loans, at competitive interest
rates and designed to suit the needs of the customer.
CHFL is one of the few housing finance institutions permitted by National
Housing Bank, to accept deposits from public. The deposit schemes of CHFL
are rated "MAAA" by ICRA, which indicates highest credit quality and carries the
lowest credit risk.
Products Offered
Housing Loans Non Housing Loans
Individual Housing Site Loans

Loan Mortgage Loans/Loan
Loans under Urban against Property
Housing (LAP)
Gruhalakshmi Rural Loans for commercial
housing Loan(GRHS) Properties
Composite Loan Personal Loans
Credit Link Subsidy Flexi LAP
Scheme(CLSS)under Commercial Housing
Pradhan Mantri Awaz Loan
Yojna
(Source: Company Presentation, Ventura Research)
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Growth Drivers for CFHL
(Source: Annual Report , Ventura Research)
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CFHL SWOT Analysis
STRENGTHS WEAKNESSES
Variety of products to cater the A lot of concentration on Southern

requirements of target segment region as 76% of the Branches are in
Increasing geographical reach South. This leaves a lot of scope to
AAA ratings for loans/NCD and A1 for expand in other parts of India
CP
Turn Around Time for approval of Increased focus on riskier
loans of just 7 days products/services like LAP, builder
0% Net NPA for last 7 Years loans, etc, often comes with a danger
Judicious Investments in tag and to some extent the bad debts
Technology which in turn rises the NPA levels
Judicious Investments in
Technology
OPPORTUNITIES THREATS
Increasing demand for land in Unavailability of land

suburbs Increasing price of land and property
Growing population Stiff Competition from Banks
Development of smart cities Volatile conditions of the Real Estate
Judicious Investments in Sector
Technology Increase in Operating Cost
(Source: Annual Report , Ventura Research)
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Key Investment Highlights
Vision of Loan CAGR FY16-20 - 35%
Vision 2020 Management Goals
To reach the loan book size of 350 bn end of FY20 with high Asset
quality with transparent and best ethical practices and prudent risk
management practices.
Business Budgets for FY17
Loan book size of 135 bn (from 106 bn in FY16)

Number of Branches/Satellite Offices to be up at 175 (from 140 as at
Mar2016)
To improve its asset quality
Lend to individual segments
Increasing the Non Housing Loan segment
Improve profitability
Extend its business operations
Increasing the Geographical Reach
Branch Expansion continues in FY17
CHFL had mainly been concentrated in Southern part, 76% of the branches
are present in South. But now to reach their goal they are steadily spreading in
other parts of the country as well.30 new offices were added during the
Q1FY17 taking the network to 170.With this branch network, CHFL will enjoy a
strong marketing and distribution capabilities to scale its business and address
the growing needs of a larger section of customers. It helps to enhance the
service quality and also the visibility in the market.
FY14 FY15 FY16 FY17E
No. of Branches 83 117 140 175
Network Growth 20% 41% 20% 25%
(Source: Annual Report, Ventura Research)
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They are not only adding the touch points but also focussing on improving the
performance and efficiency of each branch by taking various cost reduction
programs.
Continuing work with Direct Selling Agents
In order to strengthen the marketing and sales operations of CHFL at grass

root levels and to penetrate deeper into the market, the services of Direct
Selling Agents (DSA) are being taken by CHFL. However, the DSAs provide
leads to CHFL, while the technical tasks such as credit and legal aspects are
monitored by the higher officials. The number of active DSAs working for
CFHL amounts to 638. About 53% of the total business sanctions are been
sourced by them in FY 15-16 as compared to 57% during previous FY 14-15.
Continues to invest in Technology
CHFL has invested in technology to make things easier for customers. In

2013, Can Fin linked all branches on a centralised platform (like a core
banking platform) under Application Service Provider (ASP) model. To make
processes simple for customers it has provided services like:
ECS
Online transfer of funds
Online application
SMS alerts
Customer feedback through web portal
In the foreseeable future, CanFin plans to further invests in technology
to minimise distance with customers.
Asset Quality best amongst the peers, higher provisioning

drives comfort
CHFL have a robust credit policy and recovery policy. Their systems of strong
credit appraisal, credit monitoring, SMA/NPA follow up ensures good asset
quality and regular returns. They have registered good results continuously -
they reduced their chances of defaulting credit and maintained the lowest NPA
in the Indian housing finance industry.
Their prudent lending, vigilant credit mechanism and effective collection

system have helped them maintain Non-Performing Assets (NPA) for the
FY16 at 0.19% - which is well below the industry average of 0.70%
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In Q2FY17:-
Gross NPA continues to remain low at 0.25% (0.29% at Sept15)
Net NPA contained at 0.03% (0.10% at Sept15)
Provision Coverage of 88% (67% at Sept15)
Asset Quality Continued to Improve
Nil NNPAs for the 7th Successive Year

1.60
Percentage
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16
-0.20
GNPA NNPA
Source: Company Presentation
Perfection of security has also been given high importance in order to ensure
better quality of assets. One-time settlements and intensive recovery drives
are used to bring down core NPAs. CHFL has been able to maintain the
lowest GNPA level in the industry mainly because of CHFLs intense effort and
focus on asset quality.
Globalization - Recruiting Smart Local talent
It is easier for local people to understand, communicate and connect with the
customers of the same region in better ways. As a result, CHFL has strategy
to hire local talent to serve local clientele. It also adds credibility and helps to
build customer trust and turns the customers aspirations into reality.
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Lowest Turn Around Time amongst the peers
CHFL has a turnaround time (TAT) of approximately 7 days for loan approval
as they have highly efficient operations like:
Quick credit appraisals

Credit monitoring
NPA/SMA follow up
Centralised transactions
Generation of quality MIS
Target customer segment continues to be Salaried Professionals who aspire

to have their own home
Lending Basket
Category-wise Distribution of Loan Book

Particulars FY13 FY14 FY15 FY16
Salaried &
86% 86% 84% 80%
Professionals
Non-Salaried
13% 14% 15% 19%
Individuals
Builder Loans 1% 0% 0% 0%
Staff Loans 0% 0% 1% 1%
Total 100% 100% 100% 100%
(Source: Company Presentation, Ventura Research)
Carving their path in the right direction:
Central Government is taking initiatives like

Real Estate Regulatory Act
Atal Mission for Rejuvenation and Urban Transformation (AMRUT) - to
boost the infrastructural growth of the nation by developing 500 cities
across the country
The Smart City Project to develop infrastructure in 100 cities
Implementation of such policies would increase the demand for home loans
and CHFL already has a strong presence in states like Andhra Pradesh, Tamil
Nadu and Karnataka and other cities which come under these projects like
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Kakinada, Tirupati, Mangalore, Hubli, Raipur, Chandigarh, Ahemdabad, and
Vadodra etc.
Focussing on such developing cities will help them to achieve their loan
growth target. In India, about 90% of the total demand for housing is
constituted by demand for affordable homes. The average Ticket Size for
FY16 for Housing Loans is 1.8mn and for Non Housing Loans is 0.9mn
catering to the Tier II and Tier III cities.
Multiple Levers to widen the margins
Non-Housing Loans in high growth Phase:
Sustained Advancement of Loan Book Composition of Loan Book
105 %
20 Rs. in '000
Crs. 17 100
18
16 14 95
14
12 11
90
10 8
8 6 85
6
4 80
2
- 75
FY14 FY15 FY16 FY17E FY18E FY14 FY15 FY16 FY17E FY18E
FY14 FY15 FY16 FY17E FY18E Housing Loans Non housing Loans
Source: Ventura Research Source: Ventura Research
Management has given guidance of Loan Book to grow from 106 bn to

135bn in FY17. We expect the proportion of non- housing loans to increase
to 16% by FY18. Table below shows that the Non-Housing Loan interest rates
are much higher than the Housing Loans; this will lift up the NIMs and
profitability of CHFL.
Loans Interest Rates
Housing 8.85% onwards
Non Housing 11.25% onwards
(Source: Company Website, Ventura Research)
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- 10 - Thursday, 10 November, 2016
FUNDING BASKET: Increased Focus on NCDs & CPS Key
boost to margins
More NCDs and CPs in FY16
%
50
45
40
35
30
25
20
15
10
5
0
NHB Refinance Bank Loans NCDs & CP Deposits
FY15 FY16
(Source :Annual Report , Ventura Research)
Source: Company presentation
With strong AAA ratings for borrowings/NCD and A1+ for CP programs, CFHL
has reduced the borrowing cost and improved the margins and profitability by
increasing the proportion of the Borrowings through money market
instruments like NCDs and CP.
CFHL has reduced dependence on Bank Loans from 54% in FY09 to 27% in
FY16 which has substantially reduced the cost of borrowings. It was 8.75% by
the end of FY16 down from 8.89% as on Dec 2015 and further intends to
scale down the borrowing cost and strengthen the margin levels gradually.
This will be backed by the combination of strict cost management and cost
reduction programmes started in FY16 which resulted in high profits and
margin levels.
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Margin Expansion Expected
FY15 FY16 FY17E FY18E

Increase in proportion of high
yielding loans
% to total loans
Housing 89% 88% 86% 84%
Non Housing 11% 12% 14% 16%
Increase focus on NCDs and CPs

% to total borrowings
NHB Refinance 44% 37% 34% 32%
Bank Loans 31% 27% 19% 18%
NCDs and CP 22% 34% 44% 48%
Deposits 3% 2% 3% 2%
NIM 2.54% 3.24% 3.53% 3.60%

NIM Spread 1.64% 2.33% 2.70% 2.75%
(Source: Annual Report ,Ventura Research)
Interest Income
NIM and NIM Spread
4.0 %
3.5
3.0
2.5
2.0
1.5
1.0
0.5
-
NIM Spread % NIM %
(Source: Annual Report, Ventura Research)
The borrowing cost going down and yield rising up due to increasing
proportion of Non Housing Loans we expect NIMs to reach at the level of 3.6%
by FY18.
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Source: Ventura Research
Key Risks
Risks Mitigation/Risk Management

Financial risks and their effectiveness are regularly reviewed by Can Fins
Interest Rate Risks:
Risk Management Committee
Can Fins profitability can be affected
In many cases modifications are made according to the demand of the
because of the mismatch in interest rates
situations
between its assets and liabilities
Board of Directors and Audit Committee monitor the risk management
systems and discus during Board meetings about adequate steps needed
for effective risk management
Can Fin conducts regular monitoring and assessment of the customers risk
Credit Risk:
ratings by evaluating (measured by RBIA) his/her profile
A sound credit risk policy and efficient
Ensure that the financial experts can limit the challenges and perform
pricing are challenges to avoid lower returns
adequate measures during times of need.
and consequent losses
There are several checks while it evaluates the credit worthiness of its
customers when they borrow
Can Fin have mobilised its funds optimally and within the tolerance level of
Liquidity Risk:
Asset Liability Management (ALM).
The inability to match the maturity of assets
and liabilities on time might expose Can Fin It also has a comfortable CAR of 20.69%.
to liquidity risk
Can Fin also regulated the borrowings from different banks, reducing
concentration risk
It has diversified their borrowing profile with Commercial Papers and Non
Convertible Debentures (NCDs). This has not only helped get funds at lower
interest rates, but has also helped them manage the liquidity of funds with
ease.
A special team has been set up to assess market conditions, ensuring

corrective and decisive steps are for e.g.. during FY15-16 are taken. In
Market Risk:
FY16 RBI reduced its lending rate which resulted in a decline in base rates
by several HFCS
Reduced industrial activity and slowdown

Can Fin reduced the lending rates up to 1.25% as on October7, 2015 in
could impact the demand of consumers and
order to gain a competitive edge in the Indian housing finance sector
in-turn the business of Can Fin
Based on the difference in needs of customers, Can Fin has structured the
pricing of loans depending on the type of employment, i.e. salaried /
professional, self-employed, etc.
Offsite Transaction Monitoring System (OTMS) have been deployed to
Operational Risk: detect early warning signals on rear-to real-time basis to help tackling the
issues immediately
Multiple operational risks associated during
the normal course of operation pose a Systems & Procedures (S&P) Committee works helps to prevent frauds and
significant threat to overall financial position other malpractices
of Can Fin
Every branch is frequently monitored with visits by executives to ensure
optimum levels of efficiencies are maintained
A dedicated team has been set up to constantly monitor the operational
performances.
Source: Annual Report
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Financial Outlook
Business momentum to remain healthy
In Q2FY17, 30new offices (10 branches and 20 Satellite offices) were added
taking the network to 170. Increase in touch points will help CFHL to achieve
their targets.
In Q2FY17, the NCDs and CPs proportion increased from 37% (FY16) to 48%
this Quarter. With the borrowing cost reducing and the high margin business
i.e. Non-Housing Loans having a robust growth we expect CFHLs profit to
grow at a CAGR (FY16-18E)-32%.
With all the network expansion and hitting the right target segment with the
support of Government initiatives, we expect CFHL to outperform and achieve
their set goal.
Quarterly Financial Performance (Rs. crores)

Particulars Q2FY17 Q2FY16 FY16 FY15
Interest Income 320 254 1,044 787
Growth % 26 33
Interest Expense 219 183 744 610
NII 101 71 300 177
NIM % 3.7 3.5 3.2 3.4
Employee Benefit
10 9 33 25
Expenses
Depreciation &
1 1 4 4
Amortization
Other Expenses 9 6 30 27
Provisions 6 8 19 14
Total 26 24 86 69
Fee & other Income 13 9 40 30
PBT 88 56 254 138
Tax 32 21 97 51
PAT 56 35 157 86
PAT Margin % 17 14 15 11
(Source: Company Presentation ,Ventura Research)
The Interest income grew 26% YoY and NII grew 42% YoY. Provisioning
decreased from Rs.75mn to Rs.60mn and profit grew by 56% YoY basis. This
is the result of the changing borrowing mix as the proportion of NCDs/CPs
increased as compared to last year. This is also reflected in the NIMs
expansion. We expect this trend of expansion to continue.
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Valuation
We expect CFHL to deliver PAT CAGR of 35% over FY16-18E. At CMP of

1,685 the stock is trading at 4.3x and 3.5x its estimated book value for FY17
and FY18 which is attractively valued considering the valuations of its peers.
P/BV and RoE
4.50 ROE % 25%

4.00
3.50 20%
3.00
15%
2.50
2.00
10%
1.50
1.00 5%
0.50
- 0%
1-Apr-14 1-Apr-15 1-Apr-16
(Source : NSE ,Company Presentation , Ventura Research)

We note that CFHL valuation has increased from 0.6x book value in April 14 to
4.2x book value by September 16. This was driven by consistent improvement
in ROE. By end of FY16, Can Fin has 18% ROE and we expect further
improvement to 21.8% by end of FY18. We think this would support the
existing valuation.
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Share Price and P/ABV
1,800 4.50
1,600 4.00
1,400 3.50
1,200 3.00
1,000 2.50
800 2.00
600 1.50
400 1.00
200 0.50
- -
1-Jun-16
1-Jun-14
1-Oct-14
1-Jun-15
1-Oct-15
1-Apr-14
1-Aug-14
1-Feb-15
1-Apr-15
1-Aug-15
1-Feb-16
1-Apr-16
1-Aug-16
1-Dec-14
1-Dec-15
CMP P/ABV
(Source : NSE ,Company Presentation , Ventura Research)
We arrive our price target of 2175 by applying 4x multiple to expected

adjusted book value of 544 at end of Sept 18.
Source: NSE , Ventura Research

Share Price and P/E
1,600 PE 18
1,400 16
1,200 14
12
1,000
10
800
8
600
6
400 4
200 2
- -
1-Aug-13 1-Aug-14 1-Aug-15
CMP PE Multiple
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We note that CHFL traded between 10-15x forward PE till March 16. It has
seen a sharp re-rating in the past few months and trades near 20x now. This
re-rating could be due to strong performance in 1H FY17 and announcement
of intention of increasing loan book to 350 bn by FY20.
Attractive Valuations despite High Growth
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Peer Comparison for financial performance with estimates
Interest
Year NII PAT EPS NIIM P/E P/BV
Income
IBHFL
2016 78,418 27,110 23,447 57.98 5.07% 14.83 3.39
2017E 1,01,819 33,643 28,052 65.76 4.89% 13.08 2.99
2018E 1,28,996 44,614 35,971 84.32 5.11% 10.20 2.61
Can Fin
Homes
2016 10,829 3,009 1,571 59.02 3.18% 31.4 4.96
2017E 13,813 4,276 2,265 85.07 3.53% 19.8 4.3
2018E 17,758 5,581 2,855 107.23 3.60% 15.7 3.5
DHFL
2016 50,102 18,218 7,429 25.47 3.23% 12.90 1.91
2017E 59,836 22,081 9,565 31.22 3.28% 10.52 1.54
2018E 73,118 30,137 13,825 39.81 3.74% 8.25 1.30
LIC HFC
2016 1,22,509 29,441 16,608 5.50 2.43% 106.91 3.24
2017E 1,40,677 35,881 18,898 6.36 2.54% 92.43 2.77
2018E 1,62,431 41,810 22,590 7.60 2.52% 77.32 2.36
Repco
2016 8,521 3,035 1,541 24.63 4.32% 31.05 4.97
2017E 10,549 3,683 1,629 26.04 4.17% 29.38 4.25
2018E 13,321 4,766 2,167 34.65 4.27% 22.08 4.08
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Financials and Projections
Y/E March (` crore) FY15 FY16 FY17E FY18E Y/E March (` crore) FY15 FY16 FY17E FY18E
Income Statement Ratio Analysis
Interest Income 787.2 1,043.9 1,333.8 1,716.8 Efficiency Ratio (%)
Interest Expense 610.3 743.5 906.3 1,158.7 Int Expended / Int Earned 77.5 71.2 67.9 67.5
Net Interest Income 176.9 300.4 427.6 558.1 Int Income / Total Funds 9.4 9.7 9.7 9.8
YoY change (%) 42.3 30.5 NII / Total Income 85.5 88.3 89.9 90.2
Fee & other Income 29.9 39.7 48.0 60.8 Other Inc. / Total Income 14.5 11.7 10.1 9.8
Total Net Income 206.8 340.1 475.6 618.9 Ope. Exp. / Total Income 26.6 19.7 16.8 14.7
Total Operating Expenses 55.0 66.9 79.9 90.9 Net Profit / Total Funds 1.0 1.5 1.6 1.6
Pre Provision profit 151.8 273.2 395.8 528.0 Borrwings / Loans O/s 89.6 89.1 89.3 89.3
YoY change (%) 44.9 33.4
Provisions 14.3 19.4 27.2 52.2 NIM 2.5 3.2 3.5 3.6
Profit Before Tax 137.6 253.8 368.6 475.8
YoY change (%) 45.2 29.1 Solvency
Taxes 51.2 96.8 142.1 190.3 Gross NPA (Rs. Cr) 14.4 19.8 52.2 67.1
Net profit 86.4 157.0 226.5 285.5 Net NPA (Rs. Cr) 0.0 0.0 0.0 0.0
YoY change (%) 81.7 44.2 26.1 Gross NPA (%) 0.2 0.2 0.3 0.3
Net NPA (%) 0.0 0.0 0.0 0.0
Balance Sheet Capital Adequacy Ratio (%) 18.39 20.6
Fixed Assets 9.3 8.9 10.3 11.1
Non Current Investments 14.9 14.9 15.0 15.5
Long Term Loans and Advances 8,207.0 10,616.7 13,580.0 17,398.1
Short Term Loans and Advances 94.8 136.5 161.1 84.9 Per Share Data (`)
Other Current Assets 8.3 17.5 28.2 48.2 EPS 32.4 59.0 85.1 107.2
Total Assets 8,334.4 10,794.6 13,794.6 17,557.7 Dividend Per Share 7.0 10.0 17.0 21.4
Share App Money Pending Allot 0.5 0.5 0.5 0.5 Book Value 289.8 329.8 390.9 476.7
Deferred tax Liabilities 21.6 56.9 104.5 144.5
Provisions 124.3 189.3 205.8 255.8
Short Term Borrowings 1,483.7 1,659.6 3,275.4 4,193.9 Valuation Ratio
Long Term Borrowings 5,457.3 6,965.4 8,118.2 10,443.8 Price/Earnings (x) 18.7 19.6 19.8 15.7
Other Liability 475.6 1,044.8 1,049.4 1,250.0 Price/Book Value (x) 2.1 3.5 4.3 3.5
Equity 26.6 26.6 26.6 26.6 Price/Adj.Book Value (x)
Reserves 744.9 851.4 1,014.1 1,242.5
Total Liabilities 8,334.4 10,794.6 13,794.6 17,557.7 Return Ratio
RoAA (%) 1.2 1.6 1.8 1.8
Dupont Analysis RoAE (%) 14.1 19.0 23.6 24.7
% of Average Assets
Net Interest Income 2.00 3.00 3.00 4.00 Growth Ratio (%)
Non Interest Income 0.00 0.00 0.00 0.00 Interest Income 38.7 32.6 27.8 28.7
Net Income 11.00 11.00 11.00 11.00 Interest Expenses 44.4 21.8 21.9 27.9
Operating Expenses 1.00 1.00 1.00 0.01 Other Income 181.8 34.2 21.2 24.4
Operating Profit 2.00 2.00 3.00 3.00 Total Income 41.4 32.6 27.5 28.6
Provisions & Contingencies 0.00 0.00 0.00 0.00 Net profit 13.7 82.2 44.1 26.1
Taxes 1.00 1.00 1.00 1.00 Deposits 40.8 29.3 27.6 28.1
Avg.Assets / Avg.Equity (x) 11.64 11.60 12.82 13.57 Advances 40.0 28.5 28.0 28.0
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Housing Finance Sector in India
Why invest in this sector?
Housing is a basic human need, but rapid urbanization, sub-standard construction, and
lack of finance contribute to the global crisis in housing, creating one of the biggest
challenges in emerging markets.
According to IFC, the demand for low-income housing accounts for as much as 90
percent of all demand for housing worldwide. Yet in developing countries, only 7 percent
of adults have an outstanding loan to purchase a home, and only 5 percent have a loan
to build, expand, or renovate their home. Furthermore, in many markets, poor and low-
income groups have little or no means of financing housing, even improvements and
repairs.
Investments in housing finance have economic multiplier effects that lead to more jobs,
improved health and education. At the same time, access to housing and better living
standards result in greater productivity and boost shared prosperity.
What can Housing for all by 2022 do to Indian housing sector?
The commitment to have housing for all by 2022 is the vision of Indian government, and
realising this dream can be a step towards building a brighter India.
According to KPMG, implications of this vision are

By 2022, India needs to develop about 110 mn housing units
Investments of more than USD2 trillion or about USD250 to 260 billion annual
investment until 2022
Investments will need to grow at a CAGR of 12 to 13 per cent (unadjusted for
inflation) in 2022
70 per cent of the housing needs till 2022 would be concentrated in nine states.
These states are Uttar Pradesh, Bihar, Maharashtra, West Bengal, Madhya Pradesh,
Andhra Pradesh (including Telangana), Rajasthan, Tamil Nadu, and Karnataka
Urban housing will account for about 85 to 90 per cent of the total investments;
the focus should be on affordable urban houses, which is 70 per cent of the total urban
housing requirement. KPMG believes that though housing deficit is much wider in rural
areas compared to urban areas, it requires only a small portion of total investments
envisaged till 2022, which can be meted out without much difficulty.
About 1.7 to 2.0 lakh hectare of land is expected to be required to fulfil urban
housing need by 2022.
th
Housing demand scenario in India
Why buying house is prudent investment?
Rental Yield v/s Housing Loan Cost
5 %
Rental Yield Effective Interest Rate on Housing Loans
(Source: India bulls Q1FY17 Presentation. Ventura Research)
The most important reason to buy a house today is the low Difference between rental
yield and effective housing loan interest rate. It is only 0.9% p.a.
For only Rs.1,800 per month more, a house costing Rs 3 Mn can be purchased
instead of renting it a tremendous incentive to own a house and create real assets
Effective housing loan rate expected to slip below rental yield by FY18 unleashing
demand
Tepid property price appreciation combined with wage inflation pushing up
affordability
Overview of Housing Finance Industry
In India, the housing industry is recognised as having an important impact on the

countrys development, civic life and human capital formation.
Indias economic growth, coupled with favourable structural factors, such as:
Under penetration of the mortgage market,

The large gap between housing demand and supply,
Improved affordability as a result of tax incentives,
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The encouraging regulatory environment and
Positive demographic trends,
This is expected to fuel continued growth in the housing finance market.
The following graph shows the growth of total outstanding housing loans for banks and
HFCs from FY11 to FY18:
Trend in Total Outstanding Housing Loans
15 (Rs. in trillions)
10
0
FY11 FY12 FY13 FY14 FY15E FY16E FY17E FY18E
HFC Banks
(Source: CRISIL Report. Ventura Research)
CRISIL expects housing loan disbursements to have grown at a five-year CAGR of

19.00-21.00% to reach Rs.8.30 trillion by FY20, aided by mortgage penetration, higher
average ticket sizes and demand for affordable housing
Growth in Total Housing Finance Disbursements
10,000 Rs in bn
8,000
(19.21% CAGR)
6,000
4,000 (18% CAGR)

(15% CAGR)
(24% CAGR)
2,000
-
FY04E FY07E FY11E FY15E FY20E
Loan Disbursement
th
Growth Momentum: Trends in Residential Real Estate
The real estate sector in India at an inflection point, with sales in the top six residential
markets showing a strong positive uptake in 2016 after a prolonged slowdown
Mumbai residential sales up YoY by 23% for H1 CY 2016

Bangalore residential sales up YoY by 18% for H1 CY 2016
57% y-o-y growth in home loan disbursals in Gujarat
Private equity inflow into the sector has crossed 2007 levels in first five months of
2016; expected to cross previous high of 2008
Real estate developers seeing strong pickup in sales. Some examples:
o Godrej Properties has sold all the flats in phase I of its project The Trees 93%
of this within one month of launch
o Mahindra Lifespace sold 60% of its units in Mahindra Windchimes within a month
of its launch; and also sold 60% of its inventory in Vivante with the 700 sq.ft.
Apartments completely sold off
o Kotak Mahindra's private equity arm raised Rs 16 Bn to invest in residential
projects over the next 3-4 years
Affordable segment continued to maintain the largest share of total residential
sales with more than 70% of the units sold in the affordable housing segment.
Growth Momentum: Trends in Commercial Real Estate
Office space demand in the first half of CY 2016 increased by 12%1 growth YoY
across top 6 cities in India
Office space leasing in the top 7 cities of India is up by 18% YoY in CY2015
Absorption of 17 Mn sq.ft. during H1 CY 2016
o Mumbai Metropolitan Region experienced a growth of 50%1 YoY in the
commercial space in H1 CY 2016
o Hyderabad reported the highest growth of 91%1 in the commercial real estate
o Demand driven by IT / ITeS recorded over 50% of the total leasing activities
Office space vacancy is at a 5-year low. Office space vacancy in metros has
slipped below 10%
Driven by real demand as corporates implement growth plans
As a rule of thumb, 100 sq.ft. Of office space requires almost 1,000 sq.ft. of
residential space
Leasing activity is the highest in suburban and peripheral localities, which
coincide with availability of affordable housing
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Key Growth Drivers
Low mortgage penetration and housing shortage
Mortgage Penetration
100 (As a % of GDP)

90
80
70
60
50
40
30
20
10
0
The Indian mortgage industry is expected to have grown by a CAGR of 19% from
FY12 to FY15.
India's housing finance market still remains under penetrated in comparison to
many advanced and emerging economies, evidenced by its low mortgage-to-GDP ratio.
Indias low mortgage-to-GDP ratio is a result of followings
Shortage of housing supply,
Pre-existing regulatory restrictions.
There have been structural changes in India in recent years which are expected
to continue to benefit the housing finance market.
th
Urbanisation
Finance Penetration in Rural and Urban Areas
50 %
45
40
35
30
25
20
15
10
5
-
FY09 E FY10 E FY11 E FY12 E FY13 E FY14 E FY15 E FY20 E
Rural Urban
In urban areas, less than 50% houses will be bought by taking housing loans
even in FY20 while in rural areas only 10% houses will be bought by taking housing
loans.
Urbanisation is expected to accelerate with the urban population projected to
grow at a CAGR of 2.0-2.5% from FY15 to FY21.
This increase in urbanisation has affected housing demand by reducing the area
per household while increasing the number of nuclear families and, therefore, the
number of households seeking housing and housing finance.
To meet this demand, the government has implemented its affordable housing
initiatives, which provide for the construction of new houses and availability of home
loans in cities
th
Slowing average ticket size growth
Average LTV Ratio of Top 13 Cities
76 %
74
72
70
68
66
64
62
FY10 FY15E FY20E
Rising gross income levels and declining interest rates that lower the equated
monthly instalments on home loans, will render borrowers eligible for higher loan
amounts.
This will, in turn, enable the buyer to purchase a higher priced home or increase
the loan-to-value (LTV) on the loan, contributing to an increase in the average ticket
size (ATS) of loan disbursements. (Source: CRISIL Report)
Tax benefits
Under Section 80C of the Income Tax Act, 1961, an individual is eligible to claim
the deduction of the payments made towards repayment of an amount borrowed for the
purpose of purchasing or constructing a residential house.
Under Section 24(b) of the Income Tax Act, one can claim a deduction for the
amount of interest paid on the capital borrowed for the purpose of the acquisition,
construction, repair and reconstruction of a property.
Tax Incentive for Affordable Housing: Effective tax rate on housing loans for this
segment has reduced to 4% now from 12% in 2000. This will encourage more
borrowers to buy houses.
th
Particular 2016 2010 2000
Loan amount 24,00,000 24,00,000 24,00,000
Nominal Interest Rate (%) 9.40% 9.25% 13.25%
Deduction allowed on interest repayment* 2,50,000 1,50,000 75,000
Deduction allowed on principal 1,50,000 1,00,000 20,000

repayment#
Tax Rate applicable 34.61% 30.90% 34.50%
Tenure (Yrs.) 15 15 15
Total amount paid per year 3,72,354 3,18,763 3,69,140
Interest component 2,22,354 2,18,763 3,14,777
Principal component 1,50,000 1,00,000 54,363
Tax amount saved 1,28,864 77,250 32,775
Effective interest paid on housing loan 93,489 1,41,513 2,82,002
Effective interest rate on housing loan 4.02% 6.02% 11.88%
(Source: CRISIL Report & India bulls Q1FY17 Presentation. Ventura Research)
In budget for FY17 government introduced 100% tax exemption on profits from
building affordable housing. This will attract organized developers and increase supply.
Service tax exemption on construction of affordable housing will lead to reduction
in prices, increasing affordability.
Government Implemented Schemes
Over the past few years, the Government of India (GoI) has introduced various
national policies with the general aim of reinforcing the primacy of the housing sector.
These are:
Smart Cities: GOI has in place a development plan which will cover 100 cities
between 2016 to 2020, which will include improvement, city renewal, city extension
(Source: Ministry of Urban Development (Government of India) - Smart City Mission
Transform-nation Mission Statement & Guidelines).
th
Housing for all by 2022: GOI launched the programme in June 2015, with the aim
of providing 20 million new housing units in 500 towns and cities over the next seven
years. The programme was set up to promote affordable housing for the Indian
population through partnerships with entities in the private sector.
Real Estate (Regulatory & Development) Act, 2016 will lead to a structured,
transparent and disciplined sector. This will increase buyers interest in the sector as
they are likely to get a fair deal when purchasing property.
7th Pay Commission
Annual payout to 10 Mn government employees to go up by Rs 1 Tn per annum.

Increased disposable income will have positive impact on the housing sector. This is
likely to start in FY17 but could be a multi-year story as 7th PC has increased salary for
entry level jobs as well.
Population growth and changes in demographics
As of July 2015, India was home to more than 1.25 billion people (an estimated
258.70 million households Vs. 207.20 million households in 2004) and the median age
of its population was below 28 years of age (Source: World Factbook).
Population growth and changing demographics, such as age mix, increasing
trends of nuclear households, continuous urbanisation, income growth and increasing
penetration of finance, have contributed to the growth in the Indian housing market,
especially in urban areas. (Source: NHB Report)
Population growth is primarily occurring in younger age brackets, which will lead
to a significant increase in the working population, and subsequently to a greater
demand for housing.
th
Housing loan industry key players and who will win in the long term?
Key Market Participants
HFC vs Banks
Market Share of HFCs vs Banks
%
80
70
60
50
40
30
20
10
-
FY09E FY11E FY15E FY17E FY20E
Bank HFC
HFCs have steadily gained housing finance market share from banks, having
increased their share from 31% in FY12 to 37% in FY15.
HFCs are able to gain market share due to better access to customers in non-
metro cities, their strong origination skills, focused approach and customer service
orientation.
Small HFCs vs Mid-size HFCs
CRISIL predicts mid-size HFCs (like GICHF) (those with total outstanding retail
housing loans of less than Rs. 300billion as of March 2015) will record a CAGR of 27-
29% from FY16 to FY17.
Large HFCs will grow at a slower CAGR of 17.00-19.00% during the same period.
Mid-size HFCs are expected to grow at a higher rate because of their focus on
affordable housing projects and their relatively higher concentration in tier-II and smaller
cities, where growth has been higher over FY15.
th
Share of Mid-sized HFCs to Increase
100 %
90
80
70
60
50
40
30
20
10
-
FY10E FY12E FY15E FY17E
Large HFC Mid Size HFC
Quality of Assets
NPAs to Decline in the Next Two Years
%
2
0
FY11E FY12E FY13E FY14E FY15E FY16E FY17E
Industry NPA
The distinguishing feature of the housing loan portfolio in India is the low NPA
level, which is partially the result of financiers adequate appraisal systems and effective
recovery mechanisms, as well as greater information availability.
th
NPAs are likely to decline marginally in FY 2016 and 2017 owing to economic
recovery, lower interest rates, better control, system checks, follow-ups, and the
expected improvement of job.
Security Segmental analysis indicates that the GNPAs in the non-individual
portfolio are higher than in the individual portfolio
GNPA (%) Comparison between Banks and HFCs
8 %
7
6
5
4
3
2
1
-
FY11 FY12 FY13 FY14 FY15 FY16
Banks HFC
HFCs due to their singular focus and single-product specialized appraisal skills
have low NPAs.
HFC NPAs have been declining even through the period of economic stagflation
between 2008 and 2015
Sources of Borrowing
Banks have traditionally been the dominant sources of funding for HFCs, as
lending to HFCs qualifies for priority sector lending, subject to certain conditions.
Recently, high base rates of banks resulting in higher costs of bank borrowings
have driven HFCs to focus on market borrowings.
The proportion of bank borrowings therefore declined from approximately 36.00%
for FY12 to approximately 30.00% for FY14, while market borrowings in the form of
bonds and debentures increased from approximately 35.00% to approximately 40.00%
during the same period. (Source: NHB Report)
The NHB provides refinance for certain qualifying loans at significantly reduced
rates to certain qualifying HFCs.
th
In order to access NHB refinance, HFCs are required to lend to certain select
customers in the low and middle income segments in rural and urban parts of India
HFC borrowings for FY12 to FY14
45 %
40
35
30
25
20
15
10
5
0
NHB Foreign Banks Debentures Public Others
Govt or Deposits
Citizen
FY12 FY13 FY14
Profitability of HFCs
Overall Profitability of HFCs
14 % % 3
12
10
2
8
6
1
4
2
0 0
Yields on funds Cost of Net

funds spread (RHS)
th
The RBI decreased the repo rate by 125 bps cumulatively in 2015, and further
reduced it by 25 bps in April 2016, which will lower banks cost of funds.
Moreover, as market interest rates decline, HFCs are likely to be able to raise
funds through non-convertible debentures, commercial papers and other instruments at
a lower cost.
CRISIL expects the net profit margin for HFCs to be in the range of 1.80% to
2.00% in the near future, as the decline in the cost of funds will more than offset any fall
in yields.
Profitability Analysis of Large HFCs Profitability Analysis of Mid- and Small-size HFCs
% % % %
12 2 14 3
10 12
10
8 2
8
6 1
6
4 1
4
2 2
0 0 0 0
FY14 FY15 FY16E FY17E FY14 FY15 FY16E FY17E
Yields on funds Cost of Net Yields on funds Cost of Net
funds spread (RHS) funds spread (RHS)
Mid- and small-size HFCs (with a retail mortgage loan size of less than Rs 300.00
billion) have been gaining market share, which has risen to 22.00% as of March 2015,
from 14.00% in March 2010.
CRISIL expects this figure to reach 25.00% by March 2017. This is primarily due
to the variation of business dynamics between the mid- to small-size HFCs and the
large HFCs.
th
Regulatory Framework
The Indian housing market is governed by a complex legislative framework, which

pertains to property developments, the transfer of property, and the relationship
between tenant and landlord. Along with relevant broader statutory requirements, HFCs
and banks are concerned with specific regulations imposed by their respective
regulators, NHB (National Housing Bank) and RBI (Reserve Bank of India) respectively.
Sr. Key Regulations Banks HFCs

No.
1 Regulator Reserve Bank of India National Housing Bank
2 Capital adequacy ratio 9.00% 12.00%
3 Risk weight on 50.00% for loans up to 35.00% for loans up to
housing loan Rs. 2 million; LTV cap Rs. 3.00 million; LTV
90.00% cap 80.00%
50.00% for loans

50.00% for loans between Rs.3.00
between Rs. 2.00 7.50 million; LTV cap
7.50 million; LTV cap 90.00%
80.00%
75.00% for loans
75.00% for loans above above Rs. 7.50 million;
Rs. 7.50 million; LTV LTV cap 75.00%
cap 75.00%
4 Risk weight in 100.00% 100.00%
commercial real estate
loan
5 Risk weight on 75.00% 75.00%
commercial real estate
Residential Housing
loan
6 Need to maintain Cash 4.00% of net time and No
Reserve Ratio demand deposits
7 Need to maintain 21.50% of net time and 12.50% of net time
statutory liquidity ratio demand and demand deposits
8 NPA Recognition
90 Days Past Due 90 Days Past Due
9 Standard Housing 0.4% 0.4%
Asset Loans
Provisions Others 0.25-1% 1%
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How to evaluate housing finance business?
Variable Comment Current industry

average
NIM (Net interest Higher the better
margin)
GNPA (Gross Non- Non-Performing Assets Bank 7.6% , HFC 1.1%
Performing Assets) before making provision
Interest spread Difference between large HFC 1.8%; Small
Interest income and HFC 2.6%
interest expense
PCR (provision to Tells about how much Ideally it should be 100%
coverage ratio) provisions has been
made with respect to
GNPA
Housing loans as % of HFCs are increasingly Ideally being a housing
total Loans using Loan against finance company it
Property to boost their should be 100% but apart
profits. These loans can from GICHSG no other
be used for any purpose housing company has
and are more risky for 100% exposure to
HFCs. housing loans.
CAR Capital Adequacy Higher the better Most companies are
Ratio having CAR more than
NHB requirements
(Source: Ventura Securities, CRISIL Report & India bulls Q1FY17 Presentation. Ventura Research)
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These strategic changes in the composition of loan book and

We expect Can Fin to deliver PAT CAGR of 35% over FY16-18E.

Key financials (Rs. in Cr)

B] Housing Finance Sector Overview

Housing Finance Sector in India 20

Housing Loans Non Housing Loans

Individual Housing Site Loans

(Source: Company Presentation, Ventura Research)

(Source: Annual Report , Ventura Research)

Variety of products to cater the A lot of concentration on Southern

Increasing demand for land in Unavailability of land

(Source: Annual Report , Ventura Research)

Vision of Loan CAGR FY16-20 - 35%

Vision 2020 Management Goals

Business Budgets for FY17

Loan book size of 135 bn (from 106 bn in FY16)

Increasing the Geographical Reach

Branch Expansion continues in FY17

(Source: Annual Report, Ventura Research)

Continuing work with Direct Selling Agents

In order to strengthen the marketing and sales operations of CHFL at grass

Continues to invest in Technology

CHFL has invested in technology to make things easier for customers. In

Asset Quality best amongst the peers, higher provisioning

Their prudent lending, vigilant credit mechanism and effective collection

Asset Quality Continued to Improve

Nil NNPAs for the 7th Successive Year

Source: Company Presentation

Globalization - Recruiting Smart Local talent

Quick credit appraisals

Target customer segment continues to be Salaried Professionals who aspire

Category-wise Distribution of Loan Book

(Source: Company Presentation, Ventura Research)

Carving their path in the right direction:

Central Government is taking initiatives like

Multiple Levers to widen the margins

Non-Housing Loans in high growth Phase:

Sustained Advancement of Loan Book Composition of Loan Book

Source: Ventura Research Source: Ventura Research

Management has given guidance of Loan Book to grow from 106 bn to

Housing 8.85% onwards

Non Housing 11.25% onwards

(Source: Company Website, Ventura Research)

FY15 FY16 FY17E FY18E

Increase focus on NCDs and CPs

NIM 2.54% 3.24% 3.53% 3.60%

(Source: Annual Report, Ventura Research)

Risks Mitigation/Risk Management

A special team has been set up to assess market conditions, ensuring

Reduced industrial activity and slowdown

Business momentum to remain healthy

Quarterly Financial Performance (Rs. crores)

We expect CFHL to deliver PAT CAGR of 35% over FY16-18E. At CMP of

P/BV and RoE

4.50 ROE % 25%

(Source : NSE ,Company Presentation , Ventura Research)

(Source : NSE ,Company Presentation , Ventura Research)

We arrive our price target of 2175 by applying 4x multiple to expected

Source: NSE , Ventura Research

Source: Ventura Research

Attractive Valuations despite High Growth

Source: Ventura Research