PL Stock Report - Can Fin Homes (CANF IN) - Q1FY24 Result Update - Healthy earnings CAGR expected - BUY
Can Fin Homes (CANF IN) - Gaurav Jani - Research Analyst, Prabhudas Lilladher Pvt Ltd
Rating: BUY | CMP: Rs831 | TP: Rs950
Q1FY24 Result Update - Healthy earnings CAGR expected
Quick Pointers:
♦ Earnings beat of ~15% driven by better NII/NIM and lower provisions.
♦ Further scope for earnings upgrade; see PAT CAGR of 18% over FY23-26E.
We increase multiple from 2.1x to 2.3x as we raise FY24/25E PAT by average ~6.5% due to increase NIM and reduction in provisions. With RoA of 2.1% for FY24/25E, likely RoE trajectory has moved up from 16.5-17.0% to 18.0-18.5%. CANF reported yet another strong quarter with better PPoP and PAT led by NIM beat and lower provisions. Asset quality blip was due to slippage from OTR that was guided earlier. We have consistently upgraded earnings since the last 4 quarters and with likely PAT CAGR of 18% over FY23-26E, there are levers for further earnings upgrade given (1) 38% of loans are to be repriced upwards in FY24 (2) interest rates have peaked, high proportion of floating rate borrowings could benefit and (3) provisions could be lower as overlay is Rs170mn despite 70% reduction in OTR pool. Valuation at 2.2x on Mar’25 ABV suggests limited upside although earnings quality remains strong. Rolling forward to Sep’25 ABV, we raise TP to Rs950 from Rs770. Retain BUY.
♦ PPoP beat led by lower opex; core income beat due to lower tax rate: NII was a beat at Rs2.85bn (PLe Rs2.67bn) as NIM surprised positively at 3.80% (PLe 3.56%). Yield improvement outpaced funding cost rise leading to increase in NIM of 21bps QoQ. Loan growth came in exactly in-line at 18% YoY to Rs325bn. Disbursals were a bit softer Rs19.7bn (PLe Rs20.3bn) that was offset by lower repayments at Rs10.24bn (PLe Rs11.05bn). Opex was largely in-line at Rs435mn (PLe Rs429mn). PPoP at Rs2.48bn was 6.3% higher to PLe. GNPA/NNPA deteriorated by 8bps each QoQ to 0.63%/0.34% while PCR dipped QoQ to 46.6% (52.3% in Q4’23). However, provisions were lower at Rs137mn (PLe Rs200mn). PAT was Rs1.84bn (PLe Rs1.6bn).
♦ Growth guidance maintained; opex could rise: ATS (Rs2.2mn) is expected to increase with focus on APF (Approved Project Files) initiatives which will open-up the Rs2.5-10.0mn segment. Loan growth guidance for FY24E has been maintained at 18-20% that will be driven by 1) ticket size rise of 3-4% due to inflation 2) high ticket loans under APF (4-5%) and 3) growth from existing branches (10%). Over next 2-3 years, company wants to reduce DSA sourcing from 80% to 60% while increase builder tie-up channel to 20%; balance 20% would be sourced from direct (10%) and digital (10%). Cost to income may inch to 18% over medium terms as 1) company plans to add ~15 branches per annum and 2) IT spends of Rs2.4bn would be incurred–Rs600mn capex (over 2 years) and Rs1.8bn of opex (over 7 years).
♦ NIM to further improve, GNPA blip due to OTR slippage: NIM improved by 21bps QoQ mainly due to catch up in loan yields. Out of Rs180bn, Rs55bn was repriced higher by 85bps in Q1FY24 while Rs125bn would be reset upwards in remaining FY24 with rate hike of 35-40bps. Hence, we raise NIM for FY24 by 8bps to 3.43%. GNPA rose by 8bps QoQ due to slippages of Rs300mn of which Rs195mn was attributable to OTR pool and balance was seasonal. As of Q1FY24, loans worth Rs4.75bn moved out of OTR with O/S restructured amount being Rs2.16bn, which will come up for repayment in Q3FY24. Buffer provisions of Rs170mn have not been utilized.