PL Stock Report - Can Fin Homes (CANF IN) - Q2FY24 Result Update - Disbursal momentum a key driver of earnings - BUY
Prabhudas Lilladher Pvt Ltd
Can Fin Homes (CANF IN) – Gaurav Jani – Research Analyst, Prabhudas Lilladher Pvt Ltd
Rating: BUY | CMP: Rs763 | TP: Rs900
Q2FY24 Result Update - Disbursal momentum a key driver of earnings
Quick Pointers:
§ Better NII/NIM but miss on loan growth and asset quality.
§ Management reiterated disbursal guidance of Rs100bn for FY24E.
Canfin saw a mixed quarter; while NIM was 26bps higher to PLe, loan growth and asset quality disappointed. NIM could further enhance from Q2’24 levels as 20% of portfolio is yet to be repriced upwards for a rate hike 35-40bps. Disbursals at Rs20bn were softer and missed PLe by 13% due to focus on fortifying internal processes. With most of the process refinement being over, company sounded confident of achieving Rs100bn disbursals for FY24E (Rs40bn in H1FY24); we are conservative and factoring disbursals of Rs53bn in H2FY24. GNPA spiked to 0.76% (0.63% in Q2’24) of which 0.19% was due to OTR. Slippage from OTR has been higher at 14% (guidance 10%) and 30% of OTR will be tested for GNPA in Q3’24. Hence additional mgmt. overlay of Rs173mn was created leading to buffer of Rs343mn (50% of GNPA from OTR). We maintain multiple at 2.2x on Sep’25E ABV and TP at Rs900. Retain BUY.
§ Mixed quarter; PAT beat led by higher NIM, miss on growth/asset quality: NII was a beat at Rs3.17bn (PLe Rs2.98bn) as NIM (calc.) surprised positively at 4.1% (PLe 3.8%). Better NIM was a function of lower CoF at 7.73% (PLe 7.95%) as yields at 11.1% were in-line. Loan growth came in lower at 15.7% YoY (PLe 16.8%) to Rs333.6bn. Disbursals were a miss at Rs20.2bn (PLe Rs23.2bn) while repayments at Rs11.65bn came in largely as expected. Other income was a slight miss at Rs58mn (PLe Rs63mn) which was offset by lesser opex at Rs524mn (PLe Rs545mn). PPoP at Rs2.7bn was 8.2% higher to PLe led by higher NII. Asset quality deteriorated as GNPA/NNPA rose by 13/11bps each QoQ to 0.76%/0.43%, while PCR dipped QoQ from 46.6% from 43.4%. Provisions were higher Rs722mn (PLe Rs585mn) which included impact of Ambala branch fraud. PAT was ahead at Rs1.58bn (PLe Rs1.47bn).
§ Disbursal guidance for FY24 maintained: Disbursals were muted due to strengthening of processes and internal controls along with transition towards more secure IT infrastructure. However, operations have normalized as most of these fortification measures like centralized disbursal/reconciliation, cluster level risk management etc. were implemented by Sep’23. Company expects disbursals to pick-up and guidance of Rs100bn was reiterated for FY24. Market demand is robust especially in Rs2.5-5.0mn bucket, which would be the focus segment for company. Over next 2-3 years, DSA sourcing should reduce from 80% to 60% while builder tie-up channel (via APF) should enhance to 20%; balance 20% would be sourced from direct (10%) and digital (10%).
§ NIM further improved, GNPA blip due to OTR: NIM improved by 28bps QoQ, mainly due to catch up in loan yields. As at FY23 end portfolio of Rs180bn was to be repriced in FY24 for rate hike of 35-40bps. In Q1’24, Rs55bn saw an upward hike while in Q2’24 Rs57bn was repriced. Balance Rs68bn would be reset higher in H2’24. Spike in GNPA to 0.76% was attributable to OTR (19bps). From total OTR of Rs6.8bn, Rs6.13bn has moved out, of which Rs2.16bn will be tested for NPA in Q3’24. Slippage from OTR has been 14% (guidance 10%), however, adequate provision has been made. Mgmt. overlay of Rs173mn was created in Q2’24 taking the total reserve to Rs343mn.