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MOSL: CAN FIN HOMES (Buy)-Asset quality remains pristine; yields soften with re-pricing

CAN FIN HOMES: Asset quality remains pristine; yields soften with re-pricing

(CANF IN, Mkt Cap USD1b, CMP INR532, TP INR660, 24% Upside, Buy)

 

• Can Fin Homes (CANF)’s 1QFY22 PAT was up 17% YoY to INR1.09b (est. INR1.04b). The quarter was characterized by low disbursements (due to lockdowns), high operating efficiency, and strong asset quality resulting in low credit cost.
• NII stood at INR1.8b (3% miss) and declined 5% YoY /2% QoQ on sharp contraction in yields. Credit cost at INR65m (MOFSLE: INR200m) was benign; it utilized INR370m of additional management overlay towards the provision on the restructured pool of loans (<2% of the total advances).
• The management guidance that the spread and NIMs have bottomed out is outright encouraging. A healthy demand outlook would enable CANF to deliver strong loan growth without continuing to compromise on spreads. It already runs very lean opex machinery and has exhibited pristine asset quality (without any undue Stage 2 stress) – even in a pandemic-disrupted quarter. We model a loan book CAGR of ~15% over FY21–24E, expect credit costs at 8–15bp, and estimate RoE of ~16% over this period. We reiterate BUY, with unchanged TP of INR660/share (2.5x FY23E BVPS).

 New business volumes impacted by COVID lockdowns

• Disbursements declined 55% QoQ to INR8.9b (on the back of a strong 4Q, which was unarguably one of the strongest quarters for CANF).
• Total advances were largely flat QoQ at INR222b (+7% YoY). Weak disbursements were moderately mitigated by the lower run-off in the loan book on lower BT-OUT of INR570m (26bp of the quarter opening AUM).