Can Fin Homes loan growth faces repayment drag despite healthy disbursements

Investment View and Valuation

Motilal Oswal Financial Services’ July 20, 2026 result update described Can Fin Homes’ 1QFY27 earnings as in line with expectations. However, elevated portfolio attrition constrained loan growth despite healthy origination momentum. The broker retains its Neutral rating and values the company at Rs 940 per share, based on 1.6 times FY28E price-to-book value, compared with the CMP of Rs 857.

Motilal Oswal views Can Fin Homes as a resilient mortgage-finance franchise, supported by strong net interest margins in a declining interest-rate environment and consistently superior asset quality. It awaits clearer evidence that the company can execute its FY27 loan-growth guidance and sustain margins despite a higher incremental cost of borrowings.

1QFY27 Financial Performance

Can Fin Homes reported 1QFY27 profit after tax of about Rs 270 crore, up about 20 per cent year-on-year and in line with Motilal Oswal’s estimate. Net interest income rose 18 per cent year-on-year to about Rs 430 crore, also broadly in line with expectations.

Disbursements and Loan Growth

Business momentum remained healthy at the origination level. 1QFY27 disbursements rose about 29 per cent year-on-year to Rs 2,610 crore, supported by growth across all six operating zones. Disbursements to salaried customers increased 21 per cent, while those to self-employed non-professional customers grew 44 per cent. Housing-loan disbursements rose 28 per cent and non-housing loans increased 32 per cent.

Advances grew about 11 per cent year-on-year and 1.8 per cent quarter-on-quarter to about Rs 43,000 crore. This was slightly below expectations because of higher partial prepayments and principal amortisation rather than weaker originations. Annualised run-off remained elevated at about 17.6 per cent. Total loan run-off was Rs 1,860 crore, about Rs 130 crore higher quarter-on-quarter, while balance-transfer outflows were broadly stable at about Rs 400 crore to Rs 410 crore.

Margins and Management Guidance

Reported net interest margin declined about 12 basis points quarter-on-quarter to about 3.8 per cent. Reported yields declined about 25 basis points to 9.8 per cent, while the cost of borrowings declined about 22 basis points to 7 per cent. As a result, reported spreads declined about 3 basis points to 2.83 per cent.

Management raised the threshold for special pricing from loans above Rs 20 lakh to loans above Rs 25 lakh to support portfolio yields. Its reiterated FY27 guidance includes:

• AUM growth of about 14 per cent.
• Disbursements of about Rs 13,000 crore.
• Net interest margin above 3.8 per cent.
• Credit costs of about 10 basis points.
• A cost-to-income ratio near 19.5 per cent in FY27, before improvement over the medium term.

Asset Quality and Customer Mix

Asset quality was broadly stable. Gross stage 3 increased about 2 basis points quarter-on-quarter to 0.87 per cent, while net stage 3 rose about 5 basis points to about 0.42 per cent. Management said stage 2 and stage 3 assets declined sequentially in absolute terms, and NACH bounce rates have improved consistently for six quarters.

Management reported no observed impact from IT-sector stress on loan growth or asset quality, noting that only about 6 per cent of customers are directly linked to the IT sector. Self-employed non-professional loans offer around 50 basis points higher yields than salaried loans, but have gross non-performing assets of about 1.45 per cent to 1.5 per cent, compared with about 0.6 per cent to 0.63 per cent for salaried borrowers.

Technology Rollout and Estimates

The company completed a pilot of its new core technology platform in five branches. Minor issues were resolved without business disruption, and the company plans a phased rollout across the remaining 245 branches during 2QFY27.

Motilal Oswal estimates advances and PAT to compound at about 14 per cent and 7 per cent, respectively, over FY26 to FY28E. It forecasts FY28E return on assets of about 2.3 per cent and return on equity of about 17 per cent.

Key Concerns

• Sustained elevated repayments could continue to limit loan growth despite healthy disbursements.
• Net interest margins could face pressure from higher incremental borrowing costs.
• Execution against the FY27 loan-growth guidance and the ability to sustain margins remain to be demonstrated.