IGI Logo

Multiple positive trends, but sustenance key

Our view

Can Fin’s Q2 FY22 performance carried multiple positives like strong disbursements recovery (1.7x Q2 FY20 volume), lower BT Out (Rs0.5‐0.7bn as per Management; despite higher rate differential), NIM expansion (incr. spread 25 bps above port. spread) and GNPL reduction (by 7.5% qoq). Loan portfolio grew by 6% qoq and 13% yoy, with the share of salaried customers increasing further to 74%. The growth has been regionally broad based and partially supported by increasing ATS.

Portfolio yield stood resilient (aided by recent rate hikes), but the funding cost softened underpinned by persistent higher borrowing share of CPs and NHB funding. Incremental restructuring was higher than guidance, and total OTR pool rose to 2.7% of loan assets (provided @ 10%). GNPL reduction, stable SMA pool (0‐90 dpd at 7%), assessment of marginal slippages from OTR portfolio (7‐8%) and expectation of material NPL recoveries (Rs0.5‐ 0.6bn) would have underscored management’s decision to write‐back all unutilized additional provisions (Rs126mn).

Given much higher lending rates than competition and inevitable shift in borrowing mix towards NCDs and Bank Loans, we would be watchful about disbursements trajectory, BT trends, quality of customer onboarding and NIM movement over the medium term. We see a plausible combination of 14‐16% growth, 3.3‐3.5% NIM and 1.8‐2% RoA for Can Fin over FY21‐24. Marginal upgrade in earnings & ABV estimates and rollover of target multiple to FY24 cause an increase in our 12m PT to Rs725. We maintain BUY but expect the stock to underperform peers for above mentioned caution. A favourable business backdrop (significant increase in market volumes) would preclude a steep price correction though.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632

Above views are of the author and not of the website kindly read disclaimer