Steady operational performance; outlook steady
About the stock: CanFin Homes (CFHL) was promoted by Canara Bank in 1987, with ~30% stake as of December 2024. The HFC has a presence in 219 locations across 21 states and union territories (UTs).
• Housing loans comprise ~87% of book; of which ~71% is to salaried customers
• Average ticket size is ₹23 lakh for housing, ₹13 lakh for non-housing loans
Q3FY25 performance: Canfin Homes reported mixed performance in Q3FY25 with continued deceleration in business growth and earnings, though asset quality remained steady. Moderation in business growth continued with AUM at ₹37155 crore, growing 9.1% YoY, on the back of flat disbursement (₹1879 crore in Q3FY25), impacted owing to issues in registration in Karnataka. Operating performance remained muted with NII growth at 4.8% YoY, margin pressure (-2 bps QoQ and 19 bps YoY to 3.73%) and 20% YoY uptick in opex. Resultantly, earnings traction remained in single digit at 6% YoY at ₹212 crore. Asset quality continued to remain steady with GNPA at 92 bps (up 4 bps QoQ) and NNPA at 50 bps (up 3 bps QoQ).
Investment Rationale
• Optimistic on growth with focus on relatively high yield segment: Canfin Homes is set for consistent growth, with disbursement targeted at ₹12,000 crores for FY26E. The company projects ~15% YoY growth in AUM from FY26E onwards, driven by augmentation of its geographical footprints by adding 15-20 branches in North & Western parts of India which will aid growth. Focus on self-employed customers with incremental share at 35- 38% (vs AUM mix of 71:29 among salaried: self-employed) is seen to aid support to margins. Management is comfortable with contribution of selfemployed inching up to 35% over next 2-3 years.
• Disbursements impacted by regional challenges, but optimism prevails with recovery in sight: Disbursements stood at ₹1879 crores for Q3FY25 as against the projected ₹2300-2400 crores, impacted by setbacks in Karnataka due to e-khata issues, resulting in a loss of ~ ₹400 crores in business. However, management remains optimistic about gradual improvement in the process of registration. Management expects an additional ₹25-30 crore annual opex related to new IT project. Nevertheless, credit costs are projected to stay within 12-15 bps, eventually keeping RoA steady between 2-2.2%, reflecting a strong earnings outlook.
Rating and Target Price
• Canfin Homes has been best in class HFC player with a robust business model & underwriting practice, which resulted in healthy earnings growth with GNPA <1% across cycles. Steady business with conservative approach to keep asset quality stable in current challenging environment. • Expecting gradual pick up in business growth and RoA trajectory at 2- 2.2% in FY25-27E, we value CanFin Homes at 1.7x FY27E BV and assign a target price of ₹870 (earlier ₹1000). Recommend Buy rating. IDirect CanFin Q3FY25
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