Yesterday, a brokerage issued the following note which started circulating today on various Whats App groups:
*Event*: HDFC Ltd in its board meeting exchange release has indicated its intent for organic and inorganic growth in the affordable housing space.
*Question*: Can Can Fin homes ltd be a possible acquisition target?
*Our View*: We believe Can Fin homes can be a possible acquisition target for HDFC Limited.
_Key rationale_
* * Canara Bank has taken a board approval to sell its stake (30.7%) in Can Fin homes to augment resources and improve the capital base of the bank.
* * _HDFC Limited has been actively looking at opportunities to service the families from unorganized segment post PMAY launch. It had launched “HDFC Reach” program in FY15 to cater to the housing needs for same_
* * *While HDFC Ltd has an affordable housing finance subsidiary in form of Gruh, Can Fin homes provides geographical/customer profile diversity and would be a good fit in the affordable housing play for HDFC Ltd. While Gruh brings in good skills sets to service self-employed segment, Can Fin homes would provide required credit assessment and appraisal techniques to service the salaried individuals from the unorganized segment*.
* * Can Fin homes has a comparable loan book of Rs 145bn vs Rs 143 bn for Gruh, RoA/RoE of 2.1%/24.6% vs 2.1%/26.4% for Gruh and C/I ratio is contained at 14.3% vs 16.4% for Gruh.
*Valuation*: At CMP of Rs 473, Can Fin homes trades at 3.87x FY19E ABV of Rs 122. At CMP of Rs 500, GRUH trades as 11.1x FY19E ABV of Rs 45.
The stock price action in Canfin Homes today was dramatic:
Later in the day, post market hours, the same brokerage issued the following update :
Update on Can Fin Homes Stake Sale:
Canara Bank’s disclosure (dated 21 Nov’17) stated that the Board of Directors has permitted the bank to divest stake in its subsidiaries/associates, including Can Fin Homes, in part or full. Today, Canara Bank clarified that it now proposes to offload only 4% stake in Can Fin Homes, post which Canara bank’s holding would stand reduced to ~26% from ~30.7% earlier. In our report published yesterday, we had highlighted that Can Fin Homes could be a good strategic fit for HDFC Ltd.’s affordable expansion plans, in the backdrop of Canara Bank looking to offload stake to augment its capital base.
However, post Canara Bank’s clarification, we believe the probability of HDFC Ltd. taking over Can Fin Homes is limited. We will closely monitor further developments on this front.
Reminds me of the famous Keynes quote : “When the facts change, I change my mind.What do you do Sir?”
