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Good quarter and firm commentary

A quarter of in-line growth but resilient margins

Can Fin Homes delivered a 3-4% beat on NII/PPOP and a largely expected PAT on the back of in-line disbursements, small improvement in portfolio spread and stable NPLs. Opex was higher than expectations in the quarter due to promotions and increments, higher actuarial provisions, step-up in legal/SARFAESI actions and intensification of marketing activity. SMA 0/1 buckets transiently increased due to regulatory clarification disallowing holding of any advance EMI. Notwithstanding the credit cost pertaining to increase in SMA buckets and elevated opex, Can Fin delivered 2.3%/18% RoA/RoE for the quarter. Disbursements stood at Rs23.8bn (up 29% qoq/18% yoy) leading to a small improvement in loan portfolio growth (up 3% qoq/10% yoy). The Disbursement/AUM mix continues to shift towards SENP HL and LAP products and more than Rs2mn HLs. Share of SENP HL and LAP in AUM inched-up to 24% and 5.7% respectively. Portfolio Yield was stable sequentially, underpinned by the product mix shift and unchanged product pricing. CoF declined by 2 bps on qoq basis, largely on downward repricing of CPs. Share on Bank Loans increased in the absence of NHB drawdown. Credit cost was annualized 15 bps owing to increase in standard assets provisions on account of loan growth and material increase in SMA 0/1 (from 7% of portfolio as of June to 8.2% as of Sept).

Management expects further growth improvement and steady margins and credit cost

Can Fin anticipates full-year disbursements of near Rs100bn, leading to loan growth of 13-14% by end of the year. Loan growth in FY26 is estimated at 15-17%. Management expects disbursements run-rate to keep improving driven by 1) consistent distribution addition (mainly in North & West), 2) sustained higher growth in SENP HL and LAP, and 3) intensified marketing/sales activities (ramping-up of Sales team). Co. is aspiring at reach 300 branches by FY28 through consistent addition of 15-20 branches pa. The incremental ATS of HL is expected to move from 25 lacs to 27 lacs in a few quarters. BT Out & Closures have been steady in the band of 4-5%. Spread/NIM guidance has been maintained at 2.5%+/3.5%+. Co. expects CoF to come down over the coming quarters with 65% of Bank Loans linked to Repo and short-term benchmarks and drawdown of Rs20bn NHB sanction which is at lower blended rate. The decline in Portfolio Yield would be restrained by further shift of AUM towards better-yielding products of SENP HL and LAP. Credit cost guidance has been maintained at 10-12 bps for the current year. Can Fin has deployed more people for SMA collections. SENP segment asset quality has been holding up well.

Estimates largely unchanged; growth improvement can re-rate valuation

Unlike material cuts seen for most of our coverage companies, the FY25/26 earnings estimates of Can Fin remain largely unchanged. We have marginally trimmed loan growth on likely slowness in certain markets (TL & AP), but we expect a lesser margin decline over FY24-26 now. Stock trades at 10.8x PE and 1.7x PBV on FY27 estimates, and we believe that loan growth improvement on our current expectations (12- 13%/14-15% by March 25/26) can re-rate the stock. Aided by strong balance sheet quality and funding franchise, Can Fin has delivered average RoE of 18% over the past 10 years with much lesser variability.

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