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Can Fin Homes Ltd. (CANF) is the housing finance arm of Canara Bank. Predominantly active in South India, it targets Tier 1 and Tier 2 cities. The company offers a 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 11%YoY and 3% sequentially to Rs.34,999cr. The client base now stands at Rs. 2.53 lakh

* Disbursements grew by 23.1%QoQ but declined by 8.8%YoY. Net Interest Income marginally decreased sequentially but expanded by 25.5%YoY. The sequential decrease in NII growth was attributed to margin pressure.

* The management anticipates achieving a disbursal of Rs. 11,000cr by the end of FY25, driven by the addition of customers from new channels, including developer tie-ups

* The Net Interest Margin (NIM) is expected to remain at ~3.6%, supported by completed repricing activities and a favourable credit rating adjustment by ICRA, which should alleviate pressure on the cost of funds.

* We assign Buy rating on the stock with a target price of Rs. 900 based on 2x FY26E BVPS

Advances and deposits experienced a modest growth

The outstanding loan book of the company increased by 11%YoY and 3% sequentially during the quarter to Rs.34,999cr. with a clientele base of 2.5 lakh. Disbursements witnessed a QoQ increment of 23% to Rs. 2,314cr. Salaried and professional segments, which hold 72% of the total loan book, grew by 9%YoY, while the self-employed & non-professional segments, constituting 28% of the loan book, grew by 16% YoY. Management anticipates maintaining the current composition for the near future. Management aims to achieve an AUM growth target at 14–15%. On the liability side, out of the total borrowing, 59% is from banks, 16% from the NHB (National Housing Bank), and 24% through NCDs.

Margins to stabilise at current levels

Net interest income rose by 26%YoY, with interest income growing at 21%YoY and interest expense at 19%YoY. We project the NIM to remain around 3.6% for FY25-26. Pre-provision profit grew by 22.5%YoY, while CANF has conservatively increased provisions, raising PCR by 287 basis points to 48.67%. Profit after tax (PAT) registered a growth of 26.1%YoY to Rs. 209cr. There has been an uptick in operating expenses due to a one-off event relating to GST claims. We expect the NII to grow at a compound annual growth rate (CAGR) of 13% and the PAT to grow at a CAGR of 15% in FY25-26.

Pressure on asset quality has faded

Can Fin Homes has a history of maintaining premium asset quality compared to its peers. During the quarter, GNPA has improved by 9bps to 0.82% from the previous quarter's 0.91%, while NNPA has improved to 0.42% from 0.49%. Management is confident that provisions adequately address potential losses from NPAs. The PCR currently stands at 48.67% compared to 45.8% in the last quarter. The majority of restructured books have come out of the moratorium.

Outlook and valuation

The key strengths of CANF are its ability to keep asset quality under control and its strong balance sheet. Disbursal is expected to pick up due to the addition of customers from new sources, such as developer tie-up channels. Management expects demand to start picking up by year-end. Margins are expected to be sustained at around 3.6%. We therefore assign a Buy rating with a target price of Rs. 900 based on 2x FY26E BVPS.

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