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Can Fin Homes Ltd

| Q4 FY26 Earnings Conference Call

BULLISH SENTIMENT

Report Source

⬤4th May 26

Summary : Can Fin Homes delivered strong FY26 disbursements and reduced NPAs, with management optimistic about future AUM growth, branch expansion, and IT-driven efficiencies despite competitive and cost pressures.

Management Perspective positive : Management expressed confidence in achieving future growth targets, maintaining spreads, and managing credit costs. They highlighted successful IT implementations and strategic shifts, despite acknowledging some challenges like elevated rundowns and competition.

Concall Report Analysis & Insights

Business Overview

  1. Disbursements for FY26 exceeded guidance at INR 10,531 crores, with Q4 reaching an all-time high of INR 3,245 crores.
  2. Karnataka and Telangana regions showed improved performance, with Karnataka achieving 7% disbursement growth.
  3. AUM growth for FY26 was 10.44%, slightly below target due to higher-than-expected rundowns.
  4. NPA numbers reduced to 0.85% in Q4, marking the fifth consecutive quarter of delinquency reduction.
  5. 85% of the loan book is now on quarterly reset, passing on 50 basis points benefit to customers.

Future Growth Prospects

  1. Targeting 14% AUM growth for FY27 with INR 13,000 crores disbursement target.
  2. Planning to open 28 new branches in H1 FY27, including 3 in Karnataka and 2 in Telangana.
  3. Sales team strength to increase from 80-90 to 150 people to drive growth.
  4. Expecting 15% disbursement growth in Karnataka for the current year.
  5. Projecting almost uniform 25% growth across all zones for the next year.

Management Insights

  1. Management is confident in maintaining a 2.75% spread and 3.75% NIM for FY27.
  2. IT implementation, including LOS and LMS, is expected to bring significant efficiencies.
  3. The shift to quarterly resets for 85% of the book helps manage BT outs effectively.
  4. Credit costs are expected to remain benign, with a conservative guidance of 15 basis points.
  5. New branch strategy and increased sales team have significantly contributed to growth.

Signs of Skepticism

  1. The 14% AUM growth target for FY27 assumes a reduced rundown of INR 7,000 crores, which is still a projection.
  2. The impact of IT implementation on cost-to-income ratio is expected to elevate next year.
  3. The full impact of IT transformation on efficiency will be gauged more accurately in FY28.
  4. The PMAY contribution is not expected to jump drastically despite some traction.

Risk Factors

  1. Elevated rundown rates impacted AUM growth expectations in FY26.
  2. ROE might be slightly impacted in FY27 due to increased IT implementation costs.
  3. Potential lag in spreads during a rate hike cycle for the 15% of loans not on quarterly reset.
  4. Competition from LIC Housing and Bajaj Finance leads to some loan prepayments.
  5. Slowdown in the affordable housing segment impacts demand.

Good To Know

  1. Q4 FY26 included two one-time events: an additional DTA impact of INR 46 crores and a INR 13.5 crores income tax refund.
  2. IT implementation costs for FY27 are projected at INR 40 crores, with INR 6 crores already booked in FY26.
  3. The company has shifted 85% of its portfolio to quarterly resets, down from 48% previously.
  4. The cost of borrowing is managed by relying more on bank borrowings at lower rates and optimizing CP rates.
  5. The company maintains a conservative approach to LTV values, especially for takeover loans.

Key Drivers

  1. Strong disbursement growth exceeding guidance.
  2. Successful IT implementation improving efficiency.
  3. Expansion of branches and sales team.
  4. Improved performance in key regions.

Key Analyst Discussions

Competitive Environment

  1. Analysts questioned the impact of competitors like LIC Housing and Bajaj Finance on prepayments.
  2. Management explained that LIC competes on price, while Bajaj Finance offers higher top-up amounts.
  3. The company maintains a conservative LTV approach despite competitive pressures.

Market Trends & Consumer Behavior

  1. Discussion on whether Q4 disbursement momentum was seasonality-led or due to structural triggers.
  2. Management confirmed seasonality plays a role but noted strong demand inquiries continue.
  3. Affordable housing segment is experiencing a slowdown, but the company's target segment is less impacted.
  4. No major stress or delinquencies observed due to geopolitical situations.

Financial Highlights

  1. Management clarified the breakdown of disbursement targets and AUM growth projections.
  2. Discussion on the impact of amortization on DSA expenses and overall profitability.
  3. Details provided on state-wise disbursement run rates and growth projections for FY27.
  4. Explanation of credit cost projections and management overlays.
  5. Inquiry about the cost structure, particularly employee and IT expenses.

Product Composition

  1. Inquiry about the satisfaction with under 5% growth in housing loan book.
  2. Management explained a conscious effort to increase non-housing and LAP focus, especially in Karnataka.
  3. Discussion on the potential to slightly increase non-housing and SENP categories for improved yield.

Strategic Considerations

  1. Questions regarding the helpfulness and qualitative impact of IT programs.
  2. Inquiry about the strategy for branch expansion and sales team growth.
  3. Discussion on the geographical roadmap and increasing proportion of Southern states' contribution.
  4. Questions about the impact of increased digitization on cost of sourcing.