Can Fin Homes hits 52-week low; down 19% in 1 month on muted Q3 earnings

Although margins and asset quality are expected to stabilise reasonably, growth traction and operational overhaul may weigh on the outlook, analysts at Elara Capital said in results update

Shares of Can Fin Homes hit a 52-week low of Rs 558.80, as they slipped 8 per cent on the BSE in Tuesday’s intra-day trade amid heavy volumes, in an otherwise firm market. The stock of the housing finance company is quoting at its lowest level since April 2023. In comparison, the BSE Sensex was up 0.31 per cent at 74,686 at 01:07 PM.

 

In the past one month, Can Fin Homes has declined 19 per cent after the company reported a muted December 2024 quarter (Q3FY25), largely led by lowest order disbursements and elevated provisions.

 

Loan disbursements recorded during Q3FY25 was Rs 1,879 crore as against Rs 1,879 crore during Q3FY24, registering a flat performance. Disbursements during the quarter have clocked a negative growth of 21 per cent sequentially over the disbursements attained during Q2FY25, mainly on account of issues pertaining to registration in Karnataka following the introduction of E-khata requirement.

 

As a result of this lower disbursements, the company has had an impact in the asset under management (AUM) growth also, which now stands at 9 per cent for the three quarters of the year. Karnataka and Telangana contribute 48 per cent to the company's overall disbursals.  

 

Going forward, in terms of disbursements, the position in Karnataka appears to be improving slightly, with some e-khatas getting issued, the management said.

 

The underwhelming profit after tax (PAT) performance at Rs 212 crore (up 6 per cent YoY/flat QoQ) is reflective of Can Fin Home’s struggle on business traction, underlined by geography-specific issues and higher provisions (61 per cent QoQ spike) on change in regulatory norms. 

 

Net interest income (NII) growth, thus, was modest at 1.5 per cent QoQ/4.8 per cent YoY at Rs 344.7 crore. The gross NPA stands at 0.92 per cent. There's been a slight increase in the NPA; however, SMA Stage 2 level has been almost the same. The company expects GNPA to improve to 0.8 per cent in Q4FY25, aided by stronger collections and normalisation of SMA 0 anomalies.

 

A combination of external challenges, including regional stress in key geographies, delayed e-khaata registrations in Karnataka (27 per cent of AUMs), change in state policies in Telangana (19 per cent), along with internal challenges such as tech transformation and a shift in business mix, impaired business performance through 9MFY25.  Although margins and asset quality are expected to stabilise reasonably, growth traction and operational overhaul may weigh on the outlook, analysts at Elara Capital said in a results update.

 

The brokerage firm slightly trimmed the company's FY26E/27E estimates by 6 per cent/10 per cent, respectively, to factor in heightened business stress and elevated costs underpinned by business model and systems rejig. That should be partially offset by steady GNPA (albeit target spiked) and stable NIMs, translating into ~2 per cent RoA/17 per cent RoE in FY25E-27E, the brokerage firm said.

 

Can Fin Homes is targeting credit growth of 15 per cent YoY in FY26E which may be challenging given that demand recovery in the above-mentioned states could be protracted and Loan Origination System, and Loan Management System (LOS/LMS) implementation may impact disbursals, according to PL Capital.

 

There is an upside risk to loan growth due to renewal of Credit Linked Subsidy Scheme (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, the brokerage firm said in the company's results update.

 

Earlier, the 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.