Accumulate Can Fin Homes Ltd For Target Rs. 762 By Elara Capital
Holding ground, but not breaking out
Can Fin Homes (CANF IN) performance was stable but subdued, with PAT aided largely by lower provisions while core operating trends remain soft amid rising cost. Disbursement picked up as regional disruptions eased, although growth was led by select segments, and housing remains soft. Asset quality remains stable, but with elevated buffers are still in place. With ongoing business model adjustments and cost pressures, earnings pressures would persist. We retain Accumulate with a lower TP of INR of INR 762.
Provisions aid PAT; NIM to benefit from lower cost of borrowing: CANF posted a PAT of INR 2.3 bn, up 10.3% QoQ and 11.9% YoY, aided by lower provisions, down 30.3% QoQ. NII growth was subdued at 1.1% QoQ to INR 3.5 bn, in line with our estimates, limiting PPOP growth to 1.1% QoQ, which was hampered by elevated opex, up 19.3% QoQ, driving the cost-to-income ratio higher by 245bp QoQ. NIM expanded 9bp each QoQ and YoY to ~3.8%, and with repo rate cuts and cheaper CP, funding cost is likely to ease by 10-15bs, with the full NIM benefit set to flow through gradually. FY26 guidance remains steady at >2.5% spread and >3.5% NIM.
Disbursement momentum builds; stabilization in key states: Disbursements regained momentum at 30.7% QoQ and 6.1% YoY, driven by eKhaata issues being resolved in Karnataka, leading to INR 2-3bn monthly disbursements in the state, lifting AUM to INR 382.1bn, up 2.9% QoQ/9.2% YoY. The self-employed segment was up 4.7% QoQ/15.0% YoY, and within that, Loan Against Property (LAP) was up 9.3% QoQ/29.3% YoY driving growth. On the salaried side, mortgage loans grew 7.9% QoQ/21.9% YoY, and housing loans, up 1.8% QoQ/6.1% YoY remain soft. The housing loan mix dipped 46bp QoQ to 87.8%, with mortgage and top-up loans gaining share. With issues in Karnataka and Telangana stabilizing, aided by branch expansion of 234 along with a new sales team, volume is gaining traction. This strengthens confidence in achieving FY26 guidance of 20% disbursement growth and 13-15% AUM growth, with focus on diversifying the portfolio mix and reducing Direct Sales Agents (DSA) reliance.
Stable GNPA; collections strengthened along with prudent provisioning: Asset quality remains stable with GNPA at ~0.9%. SMA-0 improved materially with a ~INR 7.5bn reduction, driven by stronger follow-ups and customer engagement while SMA-1/2 benefitted from additional staff and process changes. The restructured book, initially at ~INR 7.3bn, has been steadily wound down, lowering management overlay to INR 490mn. Around INR 250mn was prudently added to overlay as a buffer, and the PCR remains in the range of 45-47%. Credit cost stood at ~0.2%, down 8bp QoQ but up 14bp YoY. Guidance is for GNPA at 0.9% and credit cost at ~15bp.
Moderate earnings outlook; retain Accumulate with a lower TP of INR 762: We reduce our PAT by 3.6% for FY27E, due to subdued NII growth, elevated opex and introduce FY28 estimates. While disbursement momentum and stable asset quality provide support, the overall performance is likely to remain underwhelming, with ~1.9% RoA and 16% RoE during FY27-28E. As a result, we pare down our TP to INR 762 from INR 813 on 1.5x (from 1.6x) FY27E P/ABV. We retain Accumulate.
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