Company Overview:

Can Fin Homes Ltd is one of the top players in the housing finance sector, in the country. The Company has completed many successful years of operation in the field of home finance and has a renowned history of making profits and paying dividends continuously, since inception in 1987. The company has several branches and satellite offices linked to the Registered Office at Bangalore through a core banking platform. Being a south based company, 70% of its branches are located in southern India. Since its inception in 1987, the company continues to promote home ownership across the country with the motto of friendship finance and good service. The company has been progressively working towards its vision of sustaining high asset quality, business growth and favourable profit margins. Can Fin Homes Limited be a Housing Finance Company offers finance for construction of a house, loan for the purchase of a flat or house, finance for the acquisition of a plot and construction of a house. Under the composite housing loan scheme; it offers loan for the extension of existing house and loan towards the repairs, renovation and upgradation of a house or flat. It also provides offers fixed deposit, cumulative deposit, fixed deposit scheme for senior citizens, cumulative deposit scheme for senior citizens, Canfin Trust Fixed Deposit scheme and Canfin Trust Cumulative Deposit scheme.

Industry Overview

Housing finance companies are specialised institutions lending to the housing sector, including both property developers and homebuyers. Initially, the HFCs were regulated and supervised by the NHB under the provisions of the National Housing Bank (NHB) Act, 1987. Later, NHB expanded and was established as a refinancer and lender to the housing sector. India’s Union Budget 2020 transferred the regulatory authority for the housing finance sector to the RBI with effect from August 9, 2019. In June 2020, the RBI proposed that HFCs should not be simultaneously allowed to lend to a property developer as well as homebuyers in the developer’s project. The Indian housing finance sector has continued its promising trajectory, showcasing remarkable development and maturity over the past year. According to the latest industry data, loans and advances of housing finance companies rose by 9.77% y/y in FY2023. This healthy growth has been driven by a confluence of factors, including rising disposable incomes, sustained housing demand, and the entry of new players in the market. HFCs recorded a 10% year-on-year growth in their on-book portfolio in the first quarter of the FY2024. ICRA anticipates an acceleration in disbursements for the remaining fiscal year and maintains its projection of a 12%-14% annual portfolio growth for both FY2024 and FY2025.

Technical view: Can Fin Homes ltd:

Key Results Highlights

• During last quarter growth in disbursements were not up to the mark from the states of Telangana & Andhra Pradesh, so from these two states, AP has seen a turn-around during the quarter
• AUM by the end of third quarter is expected to grow in the range of 11-12% & by quarter four end is expected to grow by around 13-14%.
• Credit cost during the quarter stood lower on account of reduction in absolute value of GNPA; it is expected to remain within the previously stated guidance of 10-12 bps for FY25.
• Opex during the quarter stood higher on account of actuarial valuation to the tune of Rs 30 mn, Rs 10 mn against legal expenses. Also a marketing team was set up to activate social media marketing resulting in increase in expenses.
• Guidance on spread of 2.5% + & NIM of 3.5% + remains unchanged.
• 60% of total borrowings are through the bank and out of that ~45% is linked to the repo-rate.
• Has already disbursed close to Rs 45 bn in first half and is on its way to disburse Rs 55 bn in the second half.
• With 25 bps reduction in repo rate, the company will be in the position to pass 10 bps benefit to customers. Seeing 3.75% quarterly repayment trend (15% on an annualized basis). ~4-4.5% is the usual BT-out rate, the remaining 10-10.5% is either pre-payment or the amortization impact.
• Plans to add 15 additional branches in FY25, mostly in northern & western geographies, aim to take the total branch count to 300 by FY28 so will continue to add about 15-20 branches on a yearly basis.
• In the long run, the company expects ~20% of the business to come from in-house sales channel. DSA is expected to come down from present levels of 80% to about 60%, so 60:40 is the goal which the company expects to achieve in the next two years.
• ATS on a blended basis is Rs 2.5L and is seeing significant rise in Rs 2L+ ticket size as a result of which ATS is expected to inch up to around Rs 2.7L

Valuation and strategy:

The company saw a pick-up in disbursements in the quarter (Rs 23.8 bn, up 18% YoY) with a recovery in registrations across states (except Telangana). Consequently, loan Book grew by 9.6% YoY/ 2.9% QoQ to Rs 365.6 bn. Housing Loans/Topup Personal/Mortgage-flexi loans contributed 89%/ 4%/ 6% of the portfolio. The AUM mix for 3mn ticket sizes stood at 13%/31%/28%/28% while the AUM mix in terms of salaried/non-salaried borrowers stood stable at 71:29. The company is targeting a growth of ~14% in FY25 with a disbursement run-rate of ~Rs 100bn (Rs 42 bn disbursed in H1) by focusing on growth in the LAP/ self-employed segment (ticket sizes of Rs 2L-3L) and adding ~15 new branches in tier 2 towns in the north and west. While the company has beefed up direct sales and digital marketing activities, we expect high competition in the segment to remain a challenge. We build a growth of ~14% in FY25, in line with management guidance.
The company reiterated its guidance for spreads/ NIM at 2.5%/ 3.5% in FY25. It has received funding under the NHB scheme in Q3 and 45% of its borrowings are linked to the repo-rate. We expect NIM to trend at 3.5% in FY25E (in line with management guidance), aided by a lower CoF in H2FY25. Cost/Income ratio stood at 17.10% vs.14.87% in 1QFY25; we expect it to be elevated in FY25 on account of the addition of new branches/ manpower and higher costs on the IT/business transformation side. Further going ahead we recommend to buy on Can Fin Homes with Estimated EPS for F.Y 2025 at 73.38 as compare to current year EPS of 57.59 for price target of Rs 970 for a period of 1 year.