Jefferies India retains buy rating on CanFin; ups target price by 19%

Jefferies India has retained buy rating on CanFin Homes Ltd and increased its target price to Rs 850 a share, up 19 percent from its current market price.

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Jefferies India has retained buy rating on CanFin Homes Ltd and increased its target price to Rs 850 a share, up 19 percent from its current market price. The increase in target price on the expectations of scope for positive net interest margin, easing overhang related to management transition and lower cost of equity (CoE).

Jefferies says that the salaried segment is witnessing significant demand for mid-ticket housing loans, and with competitive funding costs, this could result in a compound annual growth rate (CAGR) of 17 percent in loans from FY23 to FY26. As interest rates stabilise, there is potential for a gradual increase in net interest margins (NIMs) over the period of FY24 to FY26. Additionally, the stability of asset quality is expected to be maintained, contributing to stable credit costs.

“We forecast NIMs of 3.55 percent in FY24 (+7bps YoY). Can Fin is investing in upgrading its tech infra/ platform, which can lift opex intensity over FY24-25E,” Jefferies report said.

Recently, the CanFin stock was under pressure after MD and CEO Girish Kousgi’s resignation. Investors were disappointed as the lender has delivered healthy growth and improvement in asset quality during Kousgi tenure. Many analysts were awaiting the strategy of new MD and CEO.

According to Suresh Iyer’s, recently appointed new CEO and MD, statement to Jefferies, Can Fin expect that increased direct sourcing and loans provided to home buyers in pre-approved projects will contribute to a loan growth of 18-20 percent in FY24. The lagged repricing of loans is anticipated to have a positive impact on net interest margins (NIMs), although this may be partly offset by lower yields in the new segment. Furthermore, Can Fin have sufficient provisions to absorb any slippages in the restructured book, indicating its preparedness to handle potential risks.

Can Fin has outlined its expansion strategy, intending to open 10-15 branches annually, with a particular focus on non-south states such as Maharashtra, Gujarat, and Rajasthan. To support this growth, Can Fin plans to enhance its direct sourcing capabilities, which currently account for 70 percent of its sourcing. Additionally, the company aims to collaborate with mid-sized builders to provide loans for home buyers in pre-approved small to mid-sized projects.

Although yields in this segment are lower due to increased competition, Can Fin’s management expect that the reduction in direct selling agent (DSA) commissions and process savings will help offset any negative impact on profits, Jefferies report added.