CANFINHOME - Can Fin Homes Ltd. Share Price

The management of Can Fin Homes provided the following outlook and key points during their Q3 FY25 earnings call:

Outlook:

• Growth: Disbursements were impacted in Karnataka (34% of business) and Telangana (15%) due to delays in e-khata registrations and regulatory scrutiny, respectively. However, e-khata issuance is improving, with ~125,000 approvals (up from 45,000), which is expected to aid recovery in Q4. AUM growth stands at 9% for 9M FY25, with FY26 disbursement guidance of Rs.12,000 crore (15% AUM growth).
• Asset Quality: Gross NPA rose slightly to 0.92%, but management expects normalization in Q4 with credit costs at ~15 bps for FY25. SMA-0 (Rs.2,593 crore) includes Rs.770 crore linked to technical defaults (e.g., unpaid charges). Collections remain stable, with no significant stress observed.
• Margins & Profitability: Spread improved to 2.6% (2 bps QoQ) due to lower borrowing costs (shift to repo-linked rates, NHB funding at 7.6%) and higher yields (10.14%). NIM target of 3.5% and ROE/ROA guidance of 17%/2.1%+ are maintained.
• Liability Management: Bank borrowings now fully repo-linked; raised Rs.1,600 crore via NHB. Cost of funds down 2 bps.
• Expansion & Costs: 15 new branches planned in Q4; employee costs rose due to hires for expansion and IT transformation. Cost-to-income ratio stable (~18% in FY26).
• IT Overhaul: A Rs.250"“300 crore project with IBM (implementation by Q3 FY26) may temporarily disrupt operations but aims to enhance efficiency.

Key Risks/Monitorables: Resolution of Karnataka/Telangana issues, IT transition impact, and RBI's final guidelines on parent-subsidiary business overlap (Canara Bank). FY26 growth will focus on SENP/LAP segments (targeting 32% share from 30%) and non-impacted regions.

Major Questions and Answers from Can Fin Homes Q3 FY25 Earnings Call

Question 1 (Mahrukh Adajania):
"Sir, my first question is on general growth... does that hold true for you as well?... Where do we stand on rate competition... Have you had a discussion with Canara Bank?"
Answer: Growth outside Karnataka/Telangana remains robust, with average ticket size down marginally. Rate competition is not a significant factor in mid-to-lower segments. Discussions with Canara Bank on RBI's draft circular are ongoing; implementation clarity awaits RBI's final guidelines.

Question 2 (Praveen Kumar):
"Is there an opportunity to give up some of the yields and get closer to your NIM targets?... branch expansion... employee cost growth?"
Answer: NIM guidance (3.5%) prioritizes spreads (2.5%), with mix shifts to LAP/SENP aiding yields. Branch expansion (15 net) delayed due to closures/relocations but on track for Q4. Employee costs rose due to new hires for assurance functions and branch pre-launch training.

Question 3 (Rajiv Mehta):
"What percentage of SMA 0... check bounce charges?... Why were approvals down 20% QoQ?... Yield improvement drivers?"
Answer: ~30% of SMA 0 (Rs.770 crore) relates to unpaid charges, not principal. Approvals dipped due to Karnataka e-khata delays (sanctions lapsed). Yield improvement from SENP/LAP mix, annual customer reappraisals, and P+C loan repricing.

Question 4 (Shreepal Doshi):
"Hyderabad/Telangana issue?... Tightened underwriting?... SMA-0 trend?"
Answer: Telangana's growth fell 33% due to government scrutiny of land approvals. Underwriting norms unchanged; sector-wide stress in Karnataka/Telangana. SMA-0 linked to operational changes (RBI's EMI advance rule) but expects recovery pressure in Q4.

Question 5 (Shweta):
"Karnataka resolution timeline?... Internal sourcing mix?... SMA-0 stickiness?"
Answer: Karnataka e-khata issuance improving (125,000 vs. 45,000); expects gradual resolution. Internal sourcing via new branches (3% contribution) and sales teams. SMA-0 reduction targeted via customer education; GNPA guidance of 0.8% by FY25-end.

Question 6 (Abhijit Tibrewal):
"Provisioning cover decline... Stage 3 PCR?... FY26 growth outlook?"
Answer: PCR dip reflects focus on recoveries from older NPAs. FY26 AUM growth target: 15% (Rs.12,000 crore disbursements). Karnataka/Telangana impact normalized; growth driven by North, Rajasthan, Gujarat, and Tamil Nadu.

Question 7 (Pavan Kumar):
"SMA-0 persistence?... Credit cost guidance (15bps) feasibility?... FY26 cost-to-income?"
Answer: SMA-0 rise tied to check-bounce charges; minimal Q4 provisioning expected. FY25 credit cost (~15bps) achievable via recoveries. FY26 cost-to-income: ~18.5% due to IT transformation (Rs.30"“35 crore annual opex).

Question 8 (Kunal Shah):
"IT implementation disruption risk?... Borrowing cost trends?"
Answer: IT overhaul (Q3 FY26) may cause temporary disruption; mitigation efforts prioritized. Bank borrowings shifted to repo-linked rates (7.95"“8.1%); NHB refinance (Rs.1,600 crore at 7.6%) reduced costs.

Question 9 (Anusha Raheja):
"Demand slowdown?... FY26 AUM growth?... Bank borrowing challenges?"
Answer: Demand stable except affordable segments (<Rs.20 lakh). FY26 AUM growth: ~15%. Bank borrowings unaffected by sectoral stress; allocation rebalancing aided negotiations.

Question 10 (Siraj Khan):
"NHB refinance mix?... AUM mix targets?"
Answer: NHB refinance (1:3 AHF/regular) at 7.6% blended cost. SENP + Professional mix target: 35% by FY28 (currently 30%); salaried share ≥65%.

Question 11 (Jigar Jani):
"IT Capex impact?... PMAY contribution?"
Answer: IT Capex (Rs.60"“75 crore) amortized over 6"“7 years; FY26 opex up Rs.30"“35 crore. PMAY benefits not factored into disbursement targets due to rollout delays.