Neutral Can Fin Homes for the Target Rs 940 by Motilal Oswal Financial Services Ltd
Earnings in line; elevated portfolio attrition weighs on loan growth NIM dips ~12bp QoQ; asset quality stable with benign credit costs
* Can Fin Homes (CANF)’s PAT for 1QFY27 grew ~20% YoY to ~INR2.7b (in line). NII grew 18% YoY to ~INR4.3b (in line). Fee and other income stood at ~INR93m (PQ: INR187m).
* Opex rose ~25% YoY to INR853m (in line). The cost-to-income ratio stood at ~19.5% (PQ: ~19.8%, PY: ~18.3%). PPoP grew ~16% YoY to INR3.5b (in line).
* Credit costs stood at INR131m (vs. MOFSLe of INR220m), resulting in annualized credit costs of ~12bp (PQ: ~1bp/PY: ~27bp). The effective tax rate stood at ~21% (PY: 19.4%).
* Management indicated that demand remains healthy across geographies, with no visible slowdown in any mortgage segments. Despite higher-thanexpected portfolio attrition (driven by higher partial prepayments and principal amortization) weighing on loan book growth, the company reiterated its FY27 AUM growth guidance of ~14%. The company added that it retains the flexibility to accelerate disbursements during the year, if required, to offset elevated run-offs and achieve the targeted loan growth.
* CANF shared that the pilot implementation of its new core technology platform across five branches has been completed successfully, with only minor operational issues that were resolved promptly without any disruption to business. The rollout across the remaining 245 branches will be undertaken in phases during 2QFY27 at each month-end, with the company not expecting any material impact on business operations during this tech stack transition.
* The company shared that it has not observed any impact from the ongoing stress in the IT sector on either loan growth or asset quality. With only ~6% of its customer base directly linked to the IT sector, portfolio concentration remains limited. The company has also not experienced any increase in delinquencies and reiterated its FY27 credit cost guidance of ~10bp.
* CANF is a resilient franchise that delivered a strong NIM even in a declining interest-rate environment and consistently superior asset quality. However, we await clearer evidence about the execution of its FY27 loan growth guidance of 14% and its ability to keep NIM steady at current levels despite the higher incremental cost of borrowings. We estimate an advances/PAT CAGR of ~14%/7% over FY26-28, with an RoA/RoE of ~2.3%/~17% in FY28. We reiterate our Neutral rating with a TP of INR940 (premised on 1.6x FY28E P/BV).
NIM dips ~12bp QoQ, driven by higher compression in yields
* NIM (reported) for 1QFY27 declined ~12bp QoQ to ~3.8%.
* Reported yields for 1QFY27 dipped ~25bp QoQ to 9.8%, while CoB fell ~22bp QoQ to 7%, leading to a dip in reported spreads by ~3bp QoQ to 2.83%. The bank borrowings for the quarter declined to 62% of the total borrowings (PQ: 63%).
* CANF guided a NIM of above 3.8% for FY27. We expect the company to deliver an NIM (calc.) of ~4%/3.9% for FY27/FY28.
Valuation and view
* CANF delivered a mixed quarter, with earnings in line with estimates. Disbursement growth remained healthy YoY; however, loan growth was slightly below expectations due to elevated repayments. Asset quality was broadly stable, resulting in benign credit costs. Reported NIM contracted during the quarter, primarily due to relatively higher moderation in yields.
* The stock trades at 1.6x FY27E P/B. We model an advances/PAT CAGR of ~14%/7% over FY26-28E, with an RoA/RoE of ~2.3%/~17% in FY28E. We reiterate our Neutral rating with a TP of INR940 (based on 1.6x FY28E P/BV).
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