Steady quarter; growth to act as re-rating catalyst
About the stock: CanFin Homes (CFHL) was promoted by Canara Bank in 1987, with ~30% stake as of March 2025. The HFC has a presence in 234 locations across 21 states and union territories (UTs).
• Housing loans comprise ~86% of book; of which ~70% is to salaried customers
• Average ticket size is ₹24 lakh for housing, ₹13 lakh for non-housing loans
Q4FY25 performance: Canfin Homes delivered a mixed Q4FY25 performance with continued slower business growth, though asset quality held steady. AUM stood at ₹38,217 crore, up 9.1% YoY and 3% QoQ, driven by muted disbursement growth of 5% YoY at ₹2,455 crore. NII grew 6.4% YoY, while margin improved 9 bps sequentially at 3.82%. One time tax reversal pertaining to previous fiscal (~₹19 crore) was set-off by additional overlay of ₹25 crore in Q4FY25. Asset quality remained stable with GNPA/NNPA at 0.87%/0.47%, improving marginally QoQ.
Investment Rationale
• Optimistic on growth with focus on relatively high yield segment: Canfin Homes is set for consistent growth, with disbursement targeted at ₹10,000-10,500 crores for FY26E. The company projects ~12-13% YoY growth in AUM from FY26E onwards, driven by augmentation of its geographical footprints by adding 15 branches in North & Western parts of India which will aid growth. Gradual shift in business mix tilting towards self-employed segment (target to reach AUM mix of 65:35 in next 2-3 years vs 70:30 currently among salaried: self-employed) and better yielding nonhome loans is seen to aid growth as well yield.
• Margins and asset quality expected to remain resilient: Focus on liability management and stable asset quality positions well to protect and sustain RoA. In current cycle of interest reversal, management expects NIM to remain largely steady as transmission of rates will be aligned to benefit received on liabilities. Given borrowing from banks linked to repo rate at ~55%, overall benefit is estimated at ~20 bps. Thus, management guides for margins remaining above 3.5%. Steady asset quality with GNPA anticipated to remain below 90 bps, healthy provision coverage, credit costs is guided to be well management at ~13-15 bps. CI ratio to remain steady in FY26E, however, implementation of tech initiatives could result in ~100 bps increase in CI ratio inn FY27E. Thus, margin resilience, backed by a favourable funding mix and controlled asset quality, offers strong earnings visibility with RoA to continue at 2.1-2.2% ahead.
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.
• While steady RoA at 2-2.2% in FY26-27E warrants substantial re-rating, however, revival in business growth remains trigger to boost valuation. Thus, we value CanFin Homes at 1.7x FY27E BV and revise target price to ₹900 (earlier ₹870). Recommend Buy rating.
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