Can Fin Homes - Poised For Stronger Performance: Yes Securities

Yes Securities Report

In the Investor Meetings hosted by us, Can Fin Homes Ltd. have expressed significant confidence in delivering improved disbursements and loan growth and lower non-performing loans and credit cost over the coming quarters. Spread/net interest margin is expected to remain resilient in the near-term and glide towards the guided level of 2.5%/3.5% in the medium term.

Management’s aspiration is to grow loan assets 2-3% above the industry without compromising on risk profile and profitability. Capital raising is not required for 15- 17% loan CAGR considering expected sturdy return on asset/return on equity of 2-2.2%/17-18%. The return ratios would get a cushion from normalisation of credit cost amid some trade-off of margin for growth and the planned investment for Tech overhaul.

The underwhelming factors of recent quarters, which is sub-optimal disbursements and higher slippages, would significantly turnaround in coming quarters.

Hence, the valuation focus/narrative would shift to steady-state growth and profitability (which has been healthy for Can Fin).

Current valuation of 2.1 times price/adjusted book and 12 times price/earning on one-year forward basis, which is significantly below long-term mean, does not fully reflect the high likelihood of a stronger disbursement and credit cost performance.

Can Fin’s healthy return on equity of 18% also needs to be d in the context of lower risk and variability associated with it (average return on equity of 19% for the past 10 years). Company’s RoE and balance sheet quality stands superior to other prime housing finance companies and the affordable HFCs.

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