IGI Logo

Near-term headwinds persist

Affordable housing finance tepid;

low opex offsets provision spike Can Fin Homes (CANF IN) saw a slight beat on bottomline, up 27% QoQ/32% YoY on controlled funding cost (7.35% in Q3 versus 7.32% in Q2) and low opex (down 154bps QoQ due to one-offs in Q2). Provisions were higher than expected but more than halving sequentially as the entire restructured pool was recognized as NPA (NPA spiked to 0.9%, up 15bps QoQ) with no incremental provisions required on this stock. Loans at INR 340bn (in-line) grew just 2% QoQ as disbursements at INR 19bn fell short of expectations – CANF lost out on one month of business on operational rejig. Also, affordable housing finance was tepid given supply-side constraint, with incremental focus shifting to high-ticket lending (INR 2mn and above) to compensate for growth. BT cases were under control with attractive rate offering and better service.

Operational reengineering dents disbursements trends;

FY24 weak Growth tumbled in Q3, as operational rejig took precedence. Such transformation came at a cost – Disbursement run-rate declined to low INR 19bn as against historical INR 25bn due to some disruption and loss of business in October. CANF expects momentum to resume in Q4 with disbursement run-rate at INR 25bn climbing to INR 30bn from Q1FY25, underpinned by ticket size rise, attractive lending rate and branch growth (15 branch addition per year). While FY24 growth target is trimmed to 13%, FY25-26 should see ~18% annual growth rate.

Restructured asset stress behind; asset quality on the mend

GNPA spiked 15bps QoQ to 0.91%. CANF recognized the entire restructured stock (INR 6.7bn), with no incremental strain from this pool. The incremental provision run-rate may dip, with management overlay remaining intact. Management expects FY24 NPA in the guided range of 0.7-0.8%. We maintain our NPA estimates at 0.8-0.9% for FY24E-26E

Valuations: Recommend Accumulate,

TP maintained at INR 856 While markets may appreciate CANF’s efforts to expedite its operational rejig given recurring fraud cases, growth has taken a beating alongside supply-side shocks in the affordable housing market, thus requiring distinct efforts – Shift in ticket size to highly-competitive segments and curbing BTs. Said that, asset quality is on the mend, with restructured pool not impeding credit costs run-rate ahead. We retain estimates as we have adequately factored in conservative growth and near-term headwinds. RoA may fall a tad below 2% in our estimates. The stock may remain range-bound. Reiterate Accumulate with TP maintained at INR 856 as we value CANF at 2.2x FY25E P/ABV.

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