CanFin Homes Ltd, set up under the sponsorship of Canara Bank, the main objective of setting up the company was promoting home ownership and as wellincreasing the housing stock in the country. It is the first housing company to be promoted by a nationalized bank in India.
CanFin Homes Ltd is one of the top players in the housing finance sector, in the country today. The company has completed 29 successful years of operation in the field of home finance and has a renowned history of making profits and paying dividends continuously, since inception in 1987.
The company as on date is having Branches, 21 Affordable Housing Loan Centres (AHLCs) & 14 Satellite Officesspread across various locations of the country and all these branches and satellite offices are linked to the Registered Office at Bangalore through a core banking platform. Being a south based company, 70% of its branches are in southern India and the remaining 30% in Northern India.
The Company is a housing finance institution approved by National Housing Bank (NHB), the apex authority of housing in the country. It is a listed company and its shares are traded in all the major stock exchanges in the country.
The Company offers 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.
The company is also one of the few housing finance institutions permitted by National Housing Bank, to accept deposits from public. The deposit schemes of the company are rated "MAAA" by ICRA, which indicates highest credit quality and carries the lowest credit risk.
During H1FY19, the stock of CHFL has witnessed 46% correction – partly due to mounting concerns of asset-liability mismatch, slowing loan growth, higher NPAs and delays in implementation of RERA in the company’s key market – Karnataka (KTK).
The management has restated their expectation of pick-up in growth in H2FY19. Going ahead, while the loan growth will be a key monitorable, the companybacks healthy asset quality and a well-balanced borrowing profile keeping a strong consistent management focus.
Non-metro push is the key for CFHL since it sorts several aspects of its RoA tree: As of FY16, CFHL had 56 Non-Metro branches compared with 54 Metro branches. As of 3QFY19, CFHL has 109 Non-Metro branches compared with 66 in Metro centres. This has turned out positive for both the loan growth, margin and opex for CHFL.
This strategy would aid loan growth because bank competition is particularly intense in Metro centres given banks heightened cost of funds advantage in the current interest rate environment. The push into Non-Metro centres opens new markets for CFHL. It would also aid NIM since the ticket sizes are smaller in Non-Metros and hence eligible for special (lower) lending rate from NHB (compared with general NHB lending rate) eligible for PSL lending from banks, which is also lower cost compared with general bank rates. Moving to Non-Metro is also potentially salutary from an opex perspective as general cost levels are lower there.
Affordable Housing Fund (AHF), the NHB scheme which offer funding at rates lower than general NHB funding, opened again during the quarter and share of NHB funding rose from 7% to 13%, sequentially, for CFHL.
We see NHB funding at special rates as a durable theme for CFHL, given the ticket sizes it will tend to operate in. Liquidity was never a real issue for CFHL as opposed to what its conservatively constructed ALM table indicated. GNPA ratio was up 8 bps QoQ to 0.71% but asset quality is broadly under control.
Price: Canfin Home finance has given a fresh price breakout near the 295-300 price levels, the stock and the NBFC sector has seen a sharp reversal in the trend from down to Bullish. It has also currently become one of the most outperforming sectors among the Midcap and the small cap space. We have seen a great accumulation pattern forming in most of the NBFC stocks at lower levels but CFHF has one the best setups with the support of good volumes. The stock has formed a strong bottom out formation on the weekly charts suggesting these levels could be a low risk high reward entry point.
Volume: Price and volume analysis plays an important part in determining overall strength or weakness in the stock. Price & volume pattern are moving in the same direction which reflects the true movement in the stock, Canfin Home finance volumes have been increasing near the bottom out formation above the breakout levels which confirms the bullishness in the stock.
Relative Strength Index: RSI is a momentum indicator that shows whether stock is in overbought or oversold territory. It reflects the strength of the stock as compared to the past. Daily RSI of Canfin Home financehas been moving towards the positive territory which suggests that there is room for more upside in the stock and we can seedemand emerging in the coming few days.
MACD: Moving Average Convergence Divergence is most effective momentum indicator of the trend. Crossover in MACD line with signal line shows buy signal in the stock. Daily and intraday MACD ofCanfinhome finance have started to move up towards the bullish zone after lying in thenegative territory. Since the stock hasseen the price breaking out of a strong resistance point in the short-term time frame,we have witnessedupside momentum picking up.
Conclusion: Strong bottom out formation on the weekly charts with trend resumption in the stock, increase in volumes along with the price, short-term moving averages sloping upwards and with the stock and the sector performing well in the markets recently suggests us that this stock has very high probability to go higher towards new targets.Momentum Indicators like MACD and RSI are also indicating strength in the overall trend, we recommend buying this stock at the current levels by keeping a stop below 266 for a target of 365.