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Top Brokerage Suggests Buy Small Cap NBFC Stock, Sees 28% Potential Upside

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Leading brokerage firm Keynote Capitals has placed a buy call on Can Fin Homes Limited (CFHL) for a target price of Rs 670 per share. The brokerage sees a potential upside of up to 28% from its current level, considering the given target price. With a market cap of Rs 6,985.27 crore, it is a small-cap financial sector stock.

 

CFHL was incorporated by Canara Bank in association with HDFC and UTI. The Company focuses on low & middle-income group individuals, and first-time home buyers, with an average ticket size of Rs 2.1 Mn in FY22. The Company has grown its AUM base at 26% CAGR from Rs. ~27 Bn in FY12 to Rs. ~270 Bn in FY22 while maintaining pristine asset quality. Apart from this, CHFL has demonstrated exemplary performance on all operating parameters, irrespective of the phases of the industry cycle.

CHFL's Stock Outlook & Returns

CHFL's Stock Outlook & Returns

On NSE, the CFHL stock's current market price (CMP) of the stock is Rs 524.60 per share, down 0.20% from its previous close.

 Its 52 week high level was recorded on 7 April 2022 at Rs 685 and the 52 week low level was recorded on 20 June 2022 at Rs 406.65, respectively. 

 
The shares surged 1.11% in a week. However, in 3 months, it has fallen 17.57%. In a year, it has given negative returns of 15.7%. In the past 3 and 5 years, the stock has given 33.55% and 14.38%,  positive returns, respectively. 

Stable growth in Advances to continue
 

Stable growth in Advances to continue

The Company has shown exemplary AUM growth over the previous decade (FY12-22) and has grown its AUM ten-fold from Rs. ~27 Bn to Rs. ~270 Bn. We believe CFHL can maintain a robust growth rate of 18-20% for the foreseeable future. The Company plans to establish 12-15 branches per annum to achieve this target. The locations of these branches will be meticulously selected to avoid competition from banks. Apart from this, increased focus will be on lower tier cities and ticket sizes, which will help the Company to maintain pricing power over its customers.

Best in Class Asset Quality to be maintained

Best in Class Asset Quality to be maintained

The Company has maintained a remarkable asset quality by keeping GNPA ratio below 1% since FY16. For FY22, the Company reported a GNPA ratio of 0.6%, the lowest in the industry. To have exceptional asset quality, the Company has maintained a strict credit policy that allows lending only to low-risk and safe customers, like salaried or self-employed. Between the two, salaried borrowers induce more certainty to cashflows, thereby substantially reducing Portfolio At Risk (PAR). To ensure this, the Company has guided to maintain 70% AUM in favor of salaried borrowers.

View and Valuation

View and Valuation

The Company has a strong growth history and best-in-class asset quality across various industry phases driven by excellent risk management techniques. We believe that CFHL will grow its loan book at 18-20% in the foreseeable future and maintain its robust asset quality. Given the strong business outlook, we ascribe an adjusted P/B multiple of 2.2x to FY24E adjusted Book Value resulting in a target price of Rs. 670 and an upside of ~27% from the CMP.

Disclaimer

Disclaimer

The stock has been picked from the brokerage report of Keynote Capitals. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.

 

Story first published: Thursday, November 24, 2022, 21:15 [IST]
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