Can Fin Homes' Risk-Reward Shifts As Morgan Stanley Rolls Valuation Forward — Check Bull, Bear, Base Case

Shares of Can Fin Homes Ltd. are in the spotlight on Wednesday as brokerage firm Morgan Stanley has updated its risk-reward assessment on Can Fin Homes Ltd, rolling forward its valuation framework by six months to March 2027.

The revision has led to an approximate 6% increase in the bank’s scenario values and price target, even as earnings estimates remain unchanged.

The brokerage continues to view Can Fin Homes as a defensive, secured lending play, backed by moderate growth prospects and a mid-teens return on equity profile, trading at less than 2x price-to-book. Morgan Stanley has reiterated its 'overweight' rating on the stock, with a base-case price target of Rs 1,060.

Morgan Stanley notes that while disbursements have picked up, overall loan growth remains muted. However, management has retained its guidance of 12–13% loan growth for FY26, supported by expected disbursements of Rs 10,500 crore in FY26, compared with Rs 9,850 crore estimated by Morgan Stanley.

The brokerage believes that a sustained pickup in loan growth will be critical for improving investor interest in the stock.

Despite the subdued growth environment, Morgan Stanley finds the valuation attractive. Can Fin Homes is currently valued at 1.8x FY27 estimated book value and around 12x FY27 estimated earnings, which the brokerage views as reasonable given its expectation of 16% ROE in FY28 and around 10% EPS growth in FY28.

According to the brokerage, Can Fin Homes offers a compelling combination of a fully secured, high-quality retail mortgage portfolio, sustainable growth, and healthy ROE, supported by a headline valuation that looks attractive relative to peers.

In its bull case, Morgan Stanley values Can Fin Homes at Rs 1,420. This scenario assumes a strong housing credit market, higher-than-expected loan growth, and margin improvement, driven by lower borrowing costs and reduced competitive intensity. Improved economies of scale are expected to lower operating costs, while benign asset quality keeps provisioning requirements low.

The base case valuation of Rs 1,060. Morgan Stanley expects FY25–28 AUM CAGR of around 11%, with net interest income to average loans at 3.90% between FY26 and FY28, compared with 3.76% in FY25. Operating costs are projected to average 74 basis points of average assets under management during FY26–28, versus 65 basis points in FY25, while credit costs are expected to average 14 basis points, down from 21 basis points in FY25.

In the bear case, the stock is valued at Rs 735, or 1.3x March 2028 estimated book value. This scenario factors in weak housing credit demand, resulting in lower AUM growth, higher operating costs, and deterioration in asset quality. Credit costs in this case are expected to be higher than in the base scenario.