Neutral Can Fin Homes Ltd for the Target Rs 795 by Motilal Oswal Financial Services Ltd
Business impacted by tech transformation; loan growth weak
* Can Fin Homes’ (CANFIN) 2QFY27 PAT grew ~9% YoY to ~INR2.7b (in line). NII in 2QFY27 grew 7% YoY to ~INR4.3b (in line). Fee and other income stood at ~INR95m (PQ: INR93m).
* Opex rose ~13% YoY to INR864m (in line). Cost-to-income ratio stood at ~19.6%. (PQ: ~19.5%, PY: ~18.6%). PPoP grew ~6% YoY to INR3.5b (in line). Provisions stood at INR74m (vs. MOFSLe of INR90m), resulting in annualized credit costs of ~7bp [PQ: ~12bp and PY: ~3bp].
* CANFIN expects disbursements to accelerate following the completion of its IT transformation, which should improve sales productivity, enhance branch efficiency, and strengthen digital sourcing. The company targets ~20% disbursement growth in FY27 and disbursements of INR160b in FY28, implying FY28 AUM growth of ~15%, driven by improved operational efficiency and deeper market penetration.
* The company expects to maintain spreads of ~2.75% and NIM of ~3.75%, supported by calibrated lending rate revisions and a measured pass-through of changes in benchmark repo rates. While the recent repo rate hike is expected to increase borrowing costs, management does not anticipate any material impact on mortgage demand.
* CANFIN remains a resilient franchise, supported by stable asset quality and a scalable operating model. However, the ability to sustain NIM amid rising CoF, the impact of the rate hike on housing loan demand, and potential disruptions to construction activity from El Nino remain key monitorables. We estimate an advances/PAT CAGR of ~12%/6% over FY26-28, with an RoA/RoE of ~2.3%/~16% in FY28. Reiterate our Neutral rating with a TP of INR795 (premised on 1.2x Sep’28E P/BV).
Teething issues from IT implementation weigh on disbursements; company targets business recovery in 2H
* CANFIN’s 2QFY27 disbursements declined ~7% YoY and 9% QoQ to INR23.7b. Disbursements were hit by teething issues encountered during the migration of ~157 branches to the new tech platform. Advances grew ~10% YoY and ~1% QoQ to ~INR435b. Annualized run-off in advances declined to ~16.7% (PQ: 17.6% and PY: ~17.1%).
* The completed technology rollout should enable employees previously engaged in implementation activities to return to sales, supporting business recovery in 2HFY27. The company targets disbursements of ~INR35b in 3QFY27. Digital sourcing is projected to contribute ~10% of business, while a higher share of loans above INR3m and expansion in the INR1.5-2.5m affordable housing segment should support stronger business growth. We expect CANFIN to deliver an AUM CAGR of ~12% over FY26-28.
Valuation and view
* CANFIN’s quarterly performance reflected temporary operational disruption from the IT transformation, which weighed on disbursements. Asset quality remained healthy, with overall delinquencies largely stable and credit costs expected to remain benign at <10bp. With the technology rollout now complete, the recovery in disbursements over the coming quarters will be an important monitorable.
* The stock trades at 1.4x FY27E P/BV. We model an advances/PAT CAGR of ~12%/6% over FY26-28E, with an RoA/RoE of ~2.3%/~16% in FY28E. We reiterate our Neutral rating with a TP of INR795 (based on 1.2x Sep’28E P/BV).
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