Focus on faster delivery helps CanFin Homes take on rivals

The turnaround story of CanFin Homes, an associate of Canara Bank, began way back in FY11, when the company got a new management. The company which was earlier stagnant in terms of branch and loan growth saw several changes. The market was growing, but competition was growing faster. The new management, headed by C Ilango, realised that something had to be done. And fast.

Soon it changed the way the housing finance company was doing business. “We centralised the system, brought new staff and started sales through agents as compared to earlier, and at the same time, increased branches rapidly. This gave a new life to the company,” Atanu Bagchi, chief financial officer, CanFin Homes told ET. The result of the change of the strategy was gradual, but then it picked up sharply. Since then, the branch network has increased from 41 in the end of FY11, and more than doubled in the past three years to 103 at present.

Its loan book grew 21 per cent in FY12, and then 50 per cent in the FY13, and 46 per cent in FY14 to Rs 5,844 crore. "Our June 2014 quarter was much better than the March 2014 quarter, when usually the June quarter is a low sales season for the industry. From this, you can infer the strength of our business,” Bagchi said.

"Although our interest rates are higher, we continue to see strong demand. Customers today are willing to pay slightly higher interest rates, but what matters to them is the turnaround time. If they are getting loans quickly, they don't mind. Our endeavour is to give best services to the customer," he added. While being aggressive in terms of loan book growth, the company did not compromise on the asset quality. Its NPA (non-performing asset) of the total loan assets in FY14 was only 0.21 per cent compared with 1.06 per cent.

Compare this with the industry which has an average of 0.7 per cent. The company is now looking to reduce bank loans by borrowing through issuing NCDs (non-convertible debentures) and CPs (commercial papers) which, at present are only 4 per cent of the total borrowing of .`5,200 crore. The attempt is to improve the net interest margin (NIM).

"We have the mandate from our board to raise Rs 2,500 crore through NCDs," says Bagchi. According to industry experts, the company's NIMS may increase to 3 per cent from 2.71 per cent currently. At the same time, the company has plans to raise rs 300 crore through rights issue which will propel additional growth in future. All this could lead to company's earnings to grow by close to 40 per cent for the next couple of years.

Narayana Murthy, the co-founder of Infosys, was early to spot the changes in Can Fin Homes, and was prompted to pick up a stake in the company through his fund, Catamaran. Catamaran bought 1.49 per cent in March 2013, and increased it to 2.98 per cent at the end of June this year. Other institutions followed.

Although the company's stock has gained 170 per cent in the year to date, it continues to remain attractive when its financials and valuations are compared with its peers. While its NPAs and the growth are the best in the industry, the valuation remains the cheapest. However, in the coming few quarters, the stock may get re-rated as the Street realises the potential of the company.