Can Fin Homes growth recovery gains pace as disbursements rise and margins remain stable

Investment View and Valuation

PL Research reiterates a BUY recommendation on Can Fin Homes following a recovery in disbursements and a stable margin outlook. The broker retains its target price of Rs 1,075, based on an unchanged valuation multiple of 1.8 times March 2028 estimated adjusted book value.

PL Research has slightly revised its FY27E and FY28E estimates to reflect improving growth momentum and a stable margin trajectory.

Disbursement Recovery and Loan Growth Outlook

Q1FY27 disbursements rose 29.5 per cent year on year to Rs 26,090 mn as registration-related E-Khata issues in Karnataka and Telangana normalised. The loan book increased 10.8 per cent year on year to Rs 4,29,610 mn.

New branches and improved sales-team productivity supported sourcing. However, elevated loan-book run-down of 4.4 per cent remains an important monitorable. The run-down comprised:

• Rs 10,700 mn of part-prepayments and amortisation as the portfolio shifted from annual to quarterly resets;
• Rs 4,100 mn of balance-transfer outflows; and
• Rs 3,800 mn of other loan closures.

Portfolio Mix and Management Objectives

Management maintained its FY27 disbursement objective of Rs 1,30,000 mn, implying approximately 14 per cent AUM growth, and plans to add around 28 branches during FY27. It expects a disbursement run rate of about Rs 3,000 mn in Q2FY27 and Rs 3,500 mn to Rs 4,000 mn in both Q3FY27 and Q4FY27.

PL Research estimates loan growth of 14 per cent in FY27E and 13 per cent in FY28E, supported by housing demand, branch additions, manpower expansion and the resolution of registration disruptions in Karnataka and Telangana.

Q1FY27 Financial Performance

Q1FY27 financial performance exceeded PL Research's estimates.

Margin Outlook and Operating Costs

Reported NIM was 3.8 per cent, up 26 basis points year on year but lower sequentially. Yield declined 18 basis points quarter on quarter to 9.8 per cent as lending-rate cuts were passed on. Cost of funds improved 9 basis points to 7.0 per cent, resulting in a 9-basis-point sequential moderation in spread to 2.83 per cent.

Management retained its FY27 NIM guidance of 3.75 per cent, in line with PL Research's outlook. Funding costs are expected to benefit from pending NHB drawdowns, repayment of high-cost NCDs, competitively priced commercial-paper issuance and a higher proportion of low-cost term loans.

Although incremental term-loan rates have risen to 7.25 per cent to 7.50 per cent from 6.95 per cent last year, management expects the impact to be limited. Cost-to-income is expected to remain elevated at around 19 per cent to 19.5 per cent in FY27 because of IT implementation, branch expansion and manpower additions. Management expects it to moderate to around 18 per cent over the following three years. LOS/LMS implementation was progressing without business disruption in the pilot phase, with completion expected in Q2FY27.

Asset Quality and Credit Costs

Asset quality remained comfortable but requires monitoring. Q1FY27 GNPA and NNPA were 0.87 per cent and 0.42 per cent, respectively, compared with 0.85 per cent and 0.37 per cent in Q4FY26. Stage 2 and Stage 3 assets improved sequentially in absolute terms.

Management reported no meaningful increase in delinquencies and guided for FY27 credit cost of around 10 basis points. PL Research estimates credit cost of around 11 basis points for FY27E and FY28E. The company said IT-sector stress was not visible, with exposure limited to around 6 per cent of the loan book.

PL Research Estimates

PL Research raised its FY27E estimates as follows:

Key Risks

• Persistently high loan-book run-down;
• Increased balance-transfer outflows;
• Pressure on margins or funding costs;
• Elevated operating expenditure; and
• Deterioration in asset quality.