IGI Logo

* Can Fin Homes (CANF) reported a healthy operational performance in 1QFY24, with 13% YoY growth in PAT to ~INR1.84b, driven by lower opex. Credit costs stood at INR137m in 1QFY24 (our est. ~INR125m) because of slippages from the restructured pool of advances.

* Repricing of ~INR55b of loans in 1QFY24 and incremental disbursements at higher interest rates led to a sequential improvement of ~45bp in yields. Higher yields offset the 30bp QoQ rise in CoF, leading to a ~15bp QoQ improvement in NIM to ~3.6%. Further, repricing of ~INR125b of loans over the next two quarters will help CANF sustain (or even improve) the yields from hereon. We estimate NIM of ~3.5% in FY24/FY25.

* We model an AUM/PAT CAGR of 16% each over FY23-25E with RoA/RoE of 2%/~18% in FY25.

* CANF, in our view, is a robust franchise with strong moats on the liability side. We have long been constructive on CANF and have seen our thesis play out in the stock. At 2.2x FY25E P/BV, we believe the valuations are rich and largely price in positive factors. We downgrade our rating to Neutral with a TP of INR900 (2.3x FY25E BV). We will watch out for slippages from the restructured book, which could lead to deterioration in asset quality.

Strong YoY growth in disbursements; run-off in loan book moderates

* Disbursements grew 14% YoY to INR19.7b (our est. ~INR21.5b). There was a QoQ decline of ~INR5.7b in absolute disbursements.

* Advances grew 18% YoY and ~3% QoQ to ~INR325b. The run-off in the loan book moderated to ~13% (flat YoY). With concerted efforts, CANF has brought down the BT-OUT quarterly run rate to ~INR1b over the last two quarters and does not foresee any extraordinary pressure on BT-OUTS.

* The management has guided for 20% growth in disbursements to ~INR105b (vs. last year). Considering prepayments, it expects net accretion of ~INR65b in loans, which translates into loan book growth of 18-20%.

Margin improvement driven by re-pricing of loan book

* NIM (calc.) expanded sequentially by ~15bp to 3.6%, driven by interest rate hikes on INR55b of the loan book during the quarter.

* The share of CPs in the borrowing mix increased to ~7% as of 1QFY24 (PQ: 5%, PY: 11%). Overall debt market borrowings increased 1pp QoQ.

Minor asset quality deterioration due to slippages from restructured pool

* Asset quality saw minor deterioration, with GS3/NS3 up 8bp each to ~0.63%/0.34% and PCR on S3 loans down ~6pp QoQ to ~47%.

* During the quarter, CANF reported total slippages of ~INR300m. Out of this, ~INR195m was because of slippages from the restructured book, while the remainder was due to seasonality in the first quarter of the fiscal year. CANF holds provisions of ~INR670m on the restructured book, along with an additional management overlay of INR170m.

To Read Complete Report & Disclaimer Click Here

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

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