3 May 2022
4QFY22Results Update | Sector: Financials
Can Fin Homes
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
85.6 / 1.1
721 / 492
TP: INR750 (+17%)
Strong loan growth and continued improvement in asset
quality; but credit costs elevated
Can Fin Homes (CANF) reported an operationally healthy quarter wherein advances
grew 21% YoY and asset quality improved further with GNPA declining 7bp QoQ to
~0.6%. However, credit costs were elevated since CANF shored up its standard asset
provisions to strengthen its balance sheet. CANF has managed the pandemic upheaval
and aggression from banks really well and delivered a 3% YoY PAT growth in FY22
despite the ~20bp/30bp compression in spreads/margin, respectively. CANF has now
got back to its old ways of delivering strong loan growth and maintaining superior
asset quality. Rumors on the resignation of the MD/CEO and any materiality from the
NHB audit were denied and put to rest by the management. We maintain our BUY
rating with a target price of INR750 (based on 2.4x FY24E BVPS).
Financials & Valuations (INR b)
EPS Growth (%)
Div. Yield (%)
Healthy operational performance; disbursements grew 35% YoY in 4Q
Disbursements were up 35% YoY to INR27b while advances grew 21% YoY
and 6.5% QoQ to INR267b. CANF’s 4QFY22 PAT grew 20% YoY to INR1.23b
(in line) driven by 40bp QoQ improvement in NIM.
Over the last three quarters, CANF has demonstrated a very healthy
improvement in spreads/margins. Given expectations of a rise in interest
rates and CANF’s guidance of ~15% commercial papers (CP) in the borrowing
mix, we expect spreads/margins to now decline ~10bp each in FY23/24.
Asset quality to demonstrate strength but CANF guided conservatively
on credit costs
Shareholding pattern (%)
FII Includes depository receipts
GNPA/NNPA declined 7bp/9bp QoQ to 0.64%/0.30%, respectively, and PCR
improved ~8pp QoQ to ~53%. Credit costs in 4QFY22 included INR150m
additional contingent provisions on standard loans.
Against CANF’s guidance of ~40bp credit costs, we model ~30bp/20bp credit
costs in FY23/FY24, respectively. This is still 15-20bp higher than the pre-
pandemic credit costs, as the portfolio is now seasoned and credit costs are
likely to be higher. We estimate the headline GNPA to remain below 1%.
CANF has an enabling resolution to raise upto INR10b and it will raise equity
capital (lower than INR10b) within the next two to three quarters.
CANF guided for 2.4% spreads and 3.7%-3.75% NIM on a steady state basis.
The company has superior asset quality among its peers but we remain
watchful of the seasoning in the portfolio that could lead to a relatively
higher credit costs.
CANF has again embarked on a strong loan growth trajectory and we expect
very minimal spread/margin compression over the next two years. We
model an AUM and PAT CAGR of 17% and 16%, respectively, over FY22-
FY24E. With an RoA/RoE of 1.8%/16% in FY24E, we maintain our BUY rating
with a target price of INR750 (based on 2.4x FY24E BVPS).
Highlights from the management commentary
Strong loan growth and pristine asset quality warrant a BUY rating
Research Analyst: Prayesh Jain
Research Analyst: Nitin Aggarwal
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
advised to refer through important disclosures made at the last page of the Research Report.