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Turning the Tide

Can Fin Homes Ltd. (CANF) is the housing finance arm of Canara Bank. Predominantly active in South India, the company offers a wide range of financial products, including housing loans, composite loans, non-housing loans, mortgage loans, and commercial property loans, in addition to fixed and cumulative deposits.

• The loan book grew by 9.0% YoY to Rs. 38,773 cr. The client base now stands at 2.83 lakh. • Net interest income grew by 12.9% YoY to Rs. 349 cr. The net interest margin (NIM) edged moderately lower to 3.6% compared to last quarter.

• The cost-to-income ratio in Q1FY26 inched up mainly due to a one-time actuarial impact from salary revisions and increased rent from new branches and zonal offices. It is expected to normalize to around 18% in FY26 and 19% in FY27 with IT costs factored in.

• PAT grew modestly by 12.1% YoY to Rs. 224 cr in Q1FY26, despite an uptick in provisions. The increase in provisioning was a deliberate and tactical move by the management, aimed at cleaning up sticky accounts early in the fiscal year.

• Asset quality experienced slight deterioration, with GNPA/NNPA rising to 0.98%/0.54% from 0.91%/0.49% in Q1FY25. The Provision Coverage Ratio (PCR) also declined to 45.2% from 46.5% in Q1FY25.

Outlook & Valuation

As the benefit of the rate cut is transmitted only after it has been experienced by the bank, the NIM is expected to remain stable. The bank has guided for a credit cost of 15 bps for FY26, anticipating that asset quality will remain within a stable range. ROA and ROE are projected to remain largely stable at 2.1% and 16.6%, respectively, over FY26– 27. Therefore, we assign a BUY rating with a revised target price of Rs. 900, based on 1.8x FY27E BVPS.

Key Highlights

• Mr. Abhishek Mishra was appointed as the new Chief Financial Officer of Can Fin Homes Limited, effective June 30, 2025, following the resignation of the previous CFO.

• Can Fin Homes achieved a historic milestone in Q1 FY26 by surpassing Rs.2,000 cr in disbursements for the first time in a single quarter, reflecting a 9% YoY growth.

• Can Fin Homes has proactively transmitted the recent repo rate cuts to its customers, implementing a total reduction of 25 bps, with 10 bps in May and an additional 15 bps in July. However, the impact of this rate cut is staggered due to customer reset cycles. As of Q1FY26, approximately 67% of the loan portfolio remains on an annual reset plan, down from 72% in March, while the remaining customers are on quarterly resets.

• The affordable housing segment is witnessing a slowdown due to reduced developer incentives and limited impact of PMAY 2.0. The scheme has stricter eligibility and fewer covered cities, resulting in high rejection rates.

• The company expects Rs.10,500 cr. in disbursements for FY26, with Rs.2,500–2,600 cr targeted in Q2. Key financial metrics are guided at 3.5% NIM, 2.5% spread, 2.2% ROA, and 17.0% ROE.

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