Can Fin Homes (CANF IN) Q3FY25 Result Update

Gaurav Jani , Research Analyst , PL Capital – Prabhudas Lilladher

Loan growth continues to remain weak :

CANF saw a weak quarter since loan growth was lower while asset quality saw a blip. Credit growth was 9.1% YoY (PLe 10.9%) as disbursals were affected and dipped by 21% QoQ as state specific issues in Karnataka and Telangana marred credit flow. These 2 states contribute 48% to overall disbursals. The company is targeting credit growth of 15% YoY in FY26E which may be challenging given (1) demand recovery in abovementioned states could be protracted and (2) LOS/LMS implementation may impact disbursals. Hence, we cut loan growth for FY25/26/27E by 4%/3%/2% to 9%/11%/12% YoY. There is upside risk to loan growth due to renewal of CLSS. Asset quality has been worsening since Q4FY24 since the overdue portfolio has been increasing owing to new RBI circular disallowing adjustment of customer advances against EMIs. While stock is valued at 1.6/1.4x on FY26/27E ABV, underperformance on growth and asset quality are key concerns. We cut multiple to 1.8x from 2.1x on Sep’26 ABV and trim TP to Rs860 from Rs1,000 but retain ‘BUY’ due to favorable valuations.

• Weak quarter with miss on loan growth and asset quality: NII came in at Rs3.45bn (PLe Rs3.48bn); loan growth was a miss though NIM was largely in-line. NIM (calc.) was 3.87% (PLe3.88%) while yield on assets and cost of funds were higher than expected. Reported yield on advances improved QoQ while cost of funds reduced slightly QoQ. Reported NIM was flat QoQ at 3.64%. Loan growth was a miss at 9.1% YoY (PLe 10.9%) as disbursals were weak at Rs18.8bn (PLe Rs25bn); repayments at Rs13.15bn were in-line. Other income was lower at Rs58mn. Opex was better at Rs593mn (PLe Rs665mn) due to lesser staff cost and fees & commission. On asset quality, gross stage-3 saw a blip QoQ from 0.88% to 0.92%; PCR was 45.2% (46.3% in Q2FY25). Provisions were a miss at Rs221mn (PLe Rs150mn). PAT was 0.8% below PLe at Rs2.1bn led by lower NII and higher provisions.
• Karnataka and Telangana impacting overall growth: Disbursals fell by 21% QoQ driven by (1) E-Khaata issue in Karnataka due to which registrations stopped (2) land demolition in Telangana due to change in govt. impacting demand. Hence disbursals were hit by Rs4.3bn (Rs3.5-4bn from Karnataka). Usually, Karnataka/Telangana contribute 34%/15% to disbursals. The company does not expect the situation in Karnataka to prolong and the state govt. has already deployed staff to release E-Khaata. CANF is targeting disbursals of Rs120bn in FY26 which would translate to AuM growth of 15% YoY. Salaried vs self-employed mix was 71:29 compared with 73:27 in Q4FY23; the company is comfortable with a mix of 65:35. We cut loan growth for FY25/26/27E by 4%/3%/2% as (1) ~50% of credit flow is exposed to state related bottlenecks (2) LOS/LMS implementation in FY26 could hamper credit accretion.
• Asset quality has been a drag due to increasing SMA levels: SMA-0 balance has consistently risen from Rs1.38bn in Q4FY24 to Rs2.59bn. Earlier, company used to adjust customer advances with EMI at the end of the month however the new RBI circular disallows the same causing SMA balances to increase. This has led to elevated provisioning levels. Management expects stage-3 to fall to 0.8% from 0.9% due to higher recoveries in Q4. Hence credit costs for Q4FY25 could be negligible, suggesting provisions of 15bps for FY25.