Can Fin Homes growth gains backed by stable margins and healthy asset quality

Investment View and Valuation

ICICI Direct Research maintains its BUY rating on Can Fin Homes and has revised the target price to Rs 1,050 from Rs 1,100. The brokerage values the housing finance company at about 1.8 times FY28E book value.

Healthy execution is sustaining growth momentum. ICICI Direct expects return on assets to sustain at 2.3 per cent in FY27E and FY28E. Expanding distribution channels and direct sourcing, lower funding costs, prudent underwriting and healthy asset quality are expected to provide earnings visibility. A revival in business growth could support valuation, while execution of Roadmap 2028 and moderation in prepayments remain key monitorables.

Q1FY27 Financial Performance

Can Fin Homes reported Q1FY27 disbursements of Rs 2,609 crore, up 29 per cent year on year and above management's guided Rs 2,500 crore. The loan book grew 10.8 per cent year on year and 1.8 per cent sequentially to Rs 42,961 crore.

Profit after tax declined 22.5 per cent sequentially, chiefly because Q4FY26 included one-off tax benefits. IT-transformation expenses, including annual maintenance charges and depreciation, lifted operating costs. Consequently, the cost-to-income ratio was 19.5 per cent compared with 18.3 per cent a year earlier.

Disbursement Growth and Business Outlook

Growth was broad based across the six zones. Salaried disbursements grew 21 per cent year on year, while self-employed non-professional (SENP) disbursements grew 44 per cent. Housing-loan disbursements increased 28 per cent to Rs 1,650 crore and non-housing disbursements increased 32 per cent to Rs 958 crore.

Higher principal amortisation and part-prepayments after the move to quarterly rate resets increased rundown to Rs 1,857 crore. Management retained FY27 guidance for disbursements of Rs 13,000 crore and AUM growth of about 14 per cent. It indicated that disbursements could rise to Rs 13,200 crore to Rs 13,400 crore if needed to offset elevated rundown.

Approved Project Financing tie-ups rose to 331 projects from 271 at the end of FY26, although management said reaching a 15 per cent contribution would take time.

Margins and Asset Quality

Margins and asset quality were favourable in Q1FY27. Cost of borrowing improved to 6.98 per cent, aided by repayment of high-cost NCDs and commercial-paper issuance. Spread was 2.83 per cent and NIM was 3.81 per cent, ahead of management's FY27 guidance of 2.75 per cent and 3.75 per cent, respectively.

Management expects NIM to remain above 3.8 per cent in FY27 through product and customer-mix improvement. Gross and net NPAs were 0.87 per cent and 0.42 per cent, respectively, supported by stable collections and low credit costs.

Management reiterated credit-cost guidance of 10 basis points, RoA above 2.4 per cent and RoE above 18 per cent. SENP loans carry yields about 50 basis points above salaried loans but have GNPA of about 1.45 per cent to 1.5 per cent, against about 0.6 per cent to 0.63 per cent for salaried customers.

Technology Upgrade and Operating Efficiency

Management expects the LOS/LMS technology rollout to improve turnaround time, sales productivity and customer acquisition. A pilot started at five branches on July 8, 2026, with rollout across the remaining branches planned during Q2FY27 and completion targeted in Q3FY27.

The annual FY27 IT-cost impact is about Rs 40 crore. Management expects productivity benefits during FY27 and a gradual normalisation of the cost-to-income ratio towards 18 per cent over three years.

ICICI Direct Estimates

Key Risks and Monitorables

• Execution of Roadmap 2028 and the pace of business growth remain important monitorables.
• Moderation in prepayments will be important for the growth outlook, given the elevated rundown.
• A delay in benefits from the technology upgrade could affect productivity and operating efficiency.
• Slower business growth is a key risk identified by the broker.