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Earnings in line, but loan growth remains muted

NIM contracts 18bp QoQ; credit costs higher due to asset quality deterioration

* Can Fin Homes (CANF)’s PAT for 1QFY26 grew ~12% YoY to ~INR2.24b (in line). NII grew 13% YoY to ~INR3.6b (in line). Fees and other income stood at ~INR93m (PY: INR70m) for the quarter.

* Opex rose ~40% YoY to INR682m (~15% higher than MOFSLe). The cost-toincome ratio stood at ~18.3% (PQ: 19.4%, PY: 14.9%). The increase in the cost-to-income ratio on a YoY basis was due to salary revisions to align with market compensation and an increase in rent and taxes for 32 additional offices (25 branches, 6 zonal offices, and an extension of the Head Office).

* PPoP grew ~9% YoY to INR3.04b. The effective tax rate for the quarter was ~19.4% (PQ: 16% and PY: ~22%). RoA/RoE for 1QFY26 stood at ~2.2%/~17%.

Muted loan growth; disbursements rise ~9% YoY

* CANF’s 1QFY26 disbursements grew ~9% YoY to INR20.2b.

* Advances grew ~9% YoY and ~1.5% QoQ to ~INR388b. Annualized run-off in advances stood at ~15.3% (PQ: 15.0% and PY: ~14.8%), suggesting a mild rise in BT-OUTs.

Reported NIM dips ~18bp QoQ; bank borrowings rise QoQ

* NIM (reported) contracted ~18bp QoQ to ~3.64%, primarily due to lower fee income. Core NIM (calc.) expanded ~5bp QoQ.

* Reported spreads rose ~7bp QoQ, mainly due to ~10bp QoQ dip in CoB to 7.47%.

* Bank borrowings rose to 53% of the total borrowings (PQ: 52%).

Seasonal deterioration in asset quality; GS3 rises ~10bp QoQ

* Asset quality exhibited minor seasonal deterioration, with GS3 increasing ~10bp QoQ to ~0.98% and NS3 rising ~8bp QoQ to ~0.54%. PCR on stage 3 loans declined ~280bp QoQ to ~45.2%.

* Credit costs stood at INR263m (vs. MOFSLe of INR240m), resulting in annualized credit costs of ~27bp (PQ: ~16bp and PY: ~28bp).

DSA channel in sourcing mix declines to ~79%

* Average ticket size (ATS) of incremental housing loans stood at INR2.4m (PQ: INR2.4m).

* DSA channel in the sourcing mix declined to ~79% (PQ: 80%).

Valuation and view

CANF reported in-line earnings; however, loan growth remained subdued, with advances growing only 9% YoY. The company saw a seasonal deterioration in asset quality, resulting in sequentially elevated credit costs. Management commentary on loan growth and margin trajectory for FY26 will be the key to watch, as it will provide clarity on the company's growth strategy and profitability outlook. We may revise our estimates and TP following the earnings call on 21st Jul’25.