Buy Can Fin Homes Ltd for the Target Rs. 950 By Prabhudas Liladhar Capital Ltd
Good quarter due to NIM; growth remains a key
Quick Pointers:
? NII/NIM was a beat due to benefit on cost/yields; asset quality improves.
? Upgrade in loan growth hinges on recovery in KTK/TL.
CANF saw a good quarter with PAT beat of 15.6% driven by higher NII/NIM and much lower credit costs. Company is delivering better margins consistently as bulk (~60%) of the loan book is still at annual reset while Banks+NHB that form 71% of borrowings and are mainly floating in nature, have benefitted from repo cut of 100bps. Funding cost may not further fall except for NHB sanctions. NIM is guided at 3.75% as it gives leeway to offer competitive rates to push business in Q4. SENP stress declined, leading to low provisions of 3.2bps (28bps in Q1’26) and CANF expects stress to further reduce in Q3’26. We would closely monitor loan growth as target is to grow by 12-13% that would translate to 35% growth in disbursals over H1FY26 (Rs45.6bn). We maintain multiple of 1.8x but increase TP to Rs950 from Rs875 as we roll forward to Sep’27 ABV. Retain ‘BUY’.
Good quarter; PAT beat due to higher NII and lower opex/provisions: NII was higher at Rs4bn (PLe Rs3.7bn) due to better NIM (calc.) which was 4.24% (PLe 3.86%); reported NIM rose by 19bps QoQ to 3.83% due to fall in funding cost. AuM growth was 8.4% YoY (PLe 8.8%) and 2.3% QoQ; disbursals were Rs25.5bn (PLeRs25bn) offset by more repayment at Rs16.6bn (PLe Rs14.5bn). Housing/mortgage growth was 6.4%/32% YoY. Other inc. was Rs63mn (PLe Rs111mn) due to fees. Opex at Rs762.3mn was 6.9% below PLe led by staff cost/commissions. PPoP at Rs3.35bn was 12.3% ahead of PLe. Gross stage-3 improved QoQ at 0.94% (PLe 0.87%); PCR was 48.8% (PLe 46.0%). Provisions were lower at Rs31mn (PLe Rs225mn). PAT was 15.6% above PLe at Rs2.5bn
? Funding cost benefits fully passed on; asset quality improves: From July’25 NHB had announced PLR cut of 30bps the benefit of which will flow through over next 2 quarters. There is no scope for further reduction in borrowing cost except for NHB sanctions. CANF has received 100bps benefit on cost of funds after the repo rate cut. NIM is guided at 3.75% as it gives management leeway to offer competitive rates to push business in Q4. SMA-0, SMA-2 and NPA reduced QoQ mainly due to fall in SENP stress leading to low provisions of 3.2bps (28bps in Q1’26). Company expects stress to further reduce in Q3FY26 with likely SMA reduction of Rs1bn.
? Disbursal growth normalizing: Repayments at Rs1.66bn increased by Rs2bn QoQ of which Rs1.2bn was BT-out due to pricing. Remaining Rs0.8bn was prepayment in excess of EMIs due to surplus cash with customers; these clients are still with CANF. Karnataka disbursals increased to Rs2.75bn which may grow by 3-4% by end of Q3FY26. Telangana surpassed Rs1bn in disbursals; company expects to see a positive growth in TN by Q4FY26. FY26 disbursal guidance remains intact at Rs105bn. However, Q3FY26 disbursal target is cut to Rs20bn given impact of IT transformation. Q4FY26 disbursals were guided to be stronger to meet full year target. AUM guidance was 12-13% for FY26 and 15% for FY27/28. We are factoring AuM CAGR of ~12%.
Q2FY26 Concall Highlights
Assets/Laibilities
? Average disbursals in Karnataka for Q2’26 were Rs2.6bn and management expects to grow by 3-4% by end of Q3FY26. Karnataka disbursals have reached normalized levels of Rs2.75bn.
? In Telangana, company was able to cross Rs1bn in disbursals. Management expects to see a positive growth in TN by Q4FY26. It intends to limit disbursals in TN to Rs1.2-1.25bn since delinquencies there have also increased.
? North and east zones continue to see a healthy 30% growth. Tamil Nadu and west zone were at 20% growth.
? FY26 disbursal guidance remains intact at Rs105bn. However, Q3FY26 disbursal guidance is reduced to Rs20bn given impact of IT transformation. Q4FY26 disbursements were guided to be substantially higher to meet full year target. Management is confident of achieving it due to branch expansion and benefits from IT implementation
? AUM guidance at 12-13% for FY26 and 15% for FY27/28.
? Affordable housing growth (Rs1.5mn ATS depends on geographical presence.
? Total repayments for Q2FY26 increased by Rs2bn QoQ to Rs1.66bn of which Rs1.2bn were balance transfers due to competition. Remaining Rs0.8bn is where customers made excess payment towards EMI due to surplus cash; however, these accounts are still with CANF.
? Sales team contributed to 7% of incremental business.
Profit/Loss
? Incremental lending rate for housing is 8.7% (lowest) and 11.5% (highest) based on CIBIL score which leads to a blended rate of 10%.
? Bank has NHB sanction of Rs15bn at a blended rate of 6.8%. Effective July NHB has announced PLR rate cut of 30bps the benefit of which will flow through over next 2 quarters.
? Highest cost of borrowing on bank loans is at 7.1% for long term. There is no scope for further reduction in borrowing cost except for NHB sanctions.
? Company is not looking to raise money through ECBs however they are open to explore green funding options from foreign banks.
? NIM is guided at 3.75% as it gives management buffer to offer competitive rates to push business in Q4. CANF has received 100bps benefit on cost of funds after the repo rate cut.
? As per company there was no irrational pricing in HFC space. There is no pressure but an expectation from RBI to pass on the benefit of repo rate cut.
? 59% of customers still continue in annual reset. 8% moved to quarterly reset in Q2FY26. All new customers are compulsorily on-boarded at quarterly reset.
? Salary hikes are made once in 3 years and was done in Q1FY26. Count of employees stood at 1,317 as of Sept’25.
? IT transformation went live on 30th Sept as expected. Company is working towards 2nd phase of LOS, LMS, HRMS, deposits module scheduled for Q3FY26. Additional cost of Rs400mn will come through next year onwards. Cost to income ratio to be range between 19-19.5%.
Asset Quality
? Reduction in NPA during the quarter majorly originates from SENP book. 86% of customers have CIBIL score of 700+.
? Company saw a reduction in SMA0, SMA2 leading to a reduced provisioning of Rs30mn for Q2FY26.
? Management expects delinquencies to further reduce in Q3FY26. It expects Rs1bn reduction in SMA in Q3FY26 leading to a lower credit costs.
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