Buy This Small Cap Home Finance Stock For Gains Up To 34%, Gave 7.36% In A Week, Says Prabhudas Lilladher

Prabhudas Lillasher is bullish on Can Fin Homes Limited, a small-cap home finance company (having a market cap of Rs 6,981.27 crore). The brokerage suggests buy the stock of the company for a target price of Rs 700 per share to get 34% return on investments. According to the brokerage, earnings miss owing higher CoF but disbursal/AuM trend was healthy. Asset quality remains best-in-class; hiring of senior management a key.

Stock Outlook & Returns

On the NSE, Can Fin Homes' Current Market Price (CMP) is Rs 525.90 per share. The stock in the past 1 week has surged by 7.36%. However, in the past 1 month, it fell 10.44%. Whereas, in the past 3 months it gave 4.15% positive return. Over a year, the stock fell 22.57% and in the past 3 years, it has given 31.42% positive return. The stock in the past 5 years fell by 1.65%. Its ROE is 15.36%. Its 52-week low is Rs 406.65, which was recorded in June 2022, and its 52-week high is Rs 722, which was recorded in October 2021.

PAT miss led by lower NII and higher tax

NII was a miss at Rs2.5bn (Ple Rs2.6bn) due to lower NIM as AuM growth was higher. NIM was a miss at 3.83% (PLe 4.0%). Disbursals improved QoQ to Rs22.5bn (PLe Rs18bn) while repayments were steady at Rs9.6bn leading to stronger AuM growth of 22.2% YoY (PLe 20%). Opex was a tad lower and flat at Rs405mn owing to softer staff cost. PPoP was a slight miss at Rs2.16bn (PLe Rs2.24bn). Provisions were Rs132mn (PLe Rs150mn) although PCR declined QoQ from 54.4% to 43.4%. GNPA/NNPA at 0.62%/0.35% was largely stable sequentially. PAT was lower at Rs1.4bn (PLe Rs1.5bn) mainly led by higher tax rate.

Credit offtake better

Credit flow was largely led by salaried housing (+21.3% YoY, 68% share). Balance transfers have normalized as indicated by controlled repayments. Management guided to disbursal and AuM growth of 18-20% due to strong demand, despite of rise in construction costs. "We envisage a loan CAGR of ~17% over FY22-25E. Salaried to non-salaried mix in medium term could be 70:30 from 74:26 now. Strategy would be to grow builder book only to 0.5% over a period of 3 years. On liabilities, CP borrowing reduced on account of higher CP rates and borrowing mix may not change materially. Over longer term, company is keen on increasing its deposit base, however the same is not feasible in near term due to higher than average borrowing cost," the brokerage has said.

NIM decline priced in; asset quality stable. MD’s term to end by 20th Oct.

Company expects CoF to rise by another 35-40bps while NIM/spread in near term could be close to 3.5%/2.5%. Asset quality was stable with a reduction of Rs0.65bn in OTR pool to Rs6.3bn (coverage of 10%) and management expects 5% slippage from OTR to NPA. PCR reduced QoQ due to transition to ECL based provisions that saw transfer of Rs0.2bn NPA provision to standard assets. On succession the tenure of Mr. Kousgi would end on 20th Oct'22 and new CEO might join by CY22 end. In the interim, operations would be handled by DMD. Hiring for CFO & CRO is also in process.

Medium term story intact, Buy for Target Price of Rs 700

Canfin reported a mixed quarter as AuM growth was a beat although earnings were a miss driven by lower NIM and higher tax rate. Stronger disbursals and controlled repayments were positives. Company guided to disbursal and AUM growth of 18-20% while salaried share could reduce to 70% in medium term. Builder portfolio may reach only 0.5% over 3 years. On liabilities, CP share reduced and target is to focus on deposits over long term. Current MD's tenure would end on 20th Oct and DMD would take charge in the interim. New MD may be appointed by CY22 end. Hiring for CFO/CRO is also in process. "While recruiting senior management would be a key, Canfin's medium term story is intact and we do not foresee operational challenges. We upgrade earnings for FY23/24E by 5%/3% and with likely RoE of 16.5-17.0% over FY22- 25E, valuation at 1.6x is attractive. Rolling forward to Sep'24 ABV, we trim our multiple from 2.3x to 2.1x but raise TP from Rs675 to Rs700. Retain BUY," the brokerage has said.

Disclaimer

The stock has been picked from the brokerage report of Prabhudas Lilladher. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.