Can Fin stock: Benefits of RERA, subsidy scheme should help credit growth

Benefits of RERA, interest subsidy scheme should help credit growth

The Homes (CFH) stock took a hit following Canara Bank’s decision to call off a divestment process of its entire stake in the housing finance arm.

As a part of its plans to sell non-core assets to improve the balance sheet, Canara Bank had decided to sell its entire 30.4 per cent stake in CFH, which buoyed investor sentiment despite the latter’s tepid performance, in terms of credit growth, during the December 2017 quarter (Q3).

“Amid such a scenario (Q3 performance), Canara Bank’s decision to sell its entire stake had kept CFH’s stock price higher. Some established private companies were believed to buy the stake,” said Shailendra Kumar, chief investment officer at Narnolia Securities.

In Q3, CFH’s loan book grew 18.7 per cent year-on-year. But this was still the lowest in the past several quarters. According to the management, credit growth was affected due to major developments such as demonetisation, Real Estate Regulatory Authority (RERA) and the goods and services tax (GST). All these hit the housing industry, which contributes 89 per cent to CFH’s loan book.

Some analysts said CFH’s higher geographic concentration also weighed on credit growth. “CFH’s loan growth seems to have got affected particularly due to higher concentration in south (76 per cent) where it faced lower demand and increased competition,” analysts at Centrum Wealth Research said.

However, investors can hope for an improvement from here on. “With the pains of demonetisation, RERA and GST fading away, the benefits of RERA and the Pradhan Mantri Awas Yojana’s credit-linked subsidy scheme (CLSS; an interest subsidy scheme), we expect the period ahead to witness growth rates that are better than pre-demonetisation levels,” said Atanu Bagchi, deputy general manager and chief financial officer of CFH.

Even analysts expect credit growth to accelerate. “Loan growth has improved in states where RERA has stabilised and the same is expected to improve from FY19 with benefits of CLSS coming into play,” said Centrum’s analysts. But, there’s a caveat, too. Analysts believe a likely cautious approach amid high competition could restrict the company from growing very fast.

Bagchi though sounds confident. “Our main strategy would be to keep the company prepared to capture the much-anticipated growth, while the strong fundamentals are kept intact,” he said.

Apart from loan book growth, CFH’s asset quality is also expected to improve on the back of healthy recoveries and a fall in slippages. “The company expects recoveries to remain healthy. This, along with a reduction in incremental slippages, will help to improve the overall asset quality,” Centrum said. In the near term, an increase in cost of funds could restrict margins.

Given the improving outlook, analysts see an upside of about 10 per cent over a year and the recent correction as an opportunity to accumulate the stock.