Can Fin Homes (CANF IN) reported strong results for the first quarter of FY24, with healthy earnings growth expected in the future. The company exceeded earnings expectations by about 15%, driven by better net interest income (NII) and net interest margin (NIM), as well as lower provisions. As a result, there is further scope for earnings upgrades, with a projected compound annual growth rate (CAGR) of 18% over FY23-26.
The company’s improved performance is attributed to higher NIM, which surprised on the upside at 3.80% compared to the estimated 3.56%. The increase in NIM was driven by yield improvement outpacing the rise in funding costs. Loan growth remained in line with expectations, growing 18% year-on-year to reach Rs325 billion. Disbursals were slightly lower than projected but offset by lower repayments.
Although there was a slight deterioration in asset quality, mainly due to slippages from the one-time restructuring (OTR) pool as guided earlier, provisions were lower than expected. Gross non-performing assets (GNPA) and net non-performing assets (NNPA) both increased by 8 basis points (bps) quarter-on-quarter to 0.63% and 0.34% respectively. The provision coverage ratio (PCR) dipped to 46.6% from 52.3% in the previous quarter. However, the company’s provisions were lower than estimated.
Looking ahead, Can Fin Homes maintains its growth guidance of 18-20% for FY24, driven by various factors including a rise in ticket size due to inflation, high ticket loans, and growth from existing branches. The company also plans to reduce its dependence on direct selling agents (DSAs) and increase its tie-ups with builders and digital channels. However, it is expected that the cost-to-income ratio may increase to 18% in the medium term as the company plans to add approximately 15 branches per year and incurs IT expenses.
The company’s net interest margin is expected to improve further, with a significant portion of loans set to be repriced upwards in FY24. Despite a slight blip in asset quality, Can Fin Homes remains optimistic about its future prospects, with levers for further earnings upgrades. The combination of loan repricing, a likely decrease in provisions, and the peak in interest rates could contribute to the company’s improved performance.
In conclusion, Can Fin Homes delivered strong results in the first quarter of FY24, surpassing earnings expectations and demonstrating the potential for future growth. With a focus on improving net interest margin and a disciplined approach to asset quality, the company remains optimistic about its performance in the coming quarters.
