Can Fin Homes, a small-cap stock in the housing finance industry, have the potential to rise to Rs.800/share from its current market price of Rs.550, which hints toward an upside of 45.54 per cent, Edelweiss said in a research report.
On June 22, the stock surged 9% intraday after the company posted solid earnings for the June ending quarter. The net profit rose 49% to ₹162.31 crore as against ₹108 crore in the corresponding quarter of the preceding fiscal. Pre-provision operating profit (PPOP) increased by 10% quarter on quarter (QoQ) and 40% year on year (YoY) to ₹215 crore.
Can Fin Homes, promoted by Canara Bank, is a housing and finance company that is focused on primarily providing housing loans. Over the last one year, the stock has underperformed the benchmark by falling 2%, and it is down 9.13% in the last six months. However, the stock has risen 8.0% in the past week and 26.12% in the last one month.
Edelweiss said that the Can Fin homes beat their estimates in terms of net revenue (NR), PPOP, and PAT by 6%, 8%, and 23%, respectively. Despite AUM being in line with their estimates, the yield expansion, combined with lower operating expenses and negative credit costs, contributed to the beat.
The company's AUM grew by 24% YoY and 3% QoQ to ₹27,538 crore and disbursements stood at ₹1,722 crore, up 39% year-on-year, aided by a low base of Q1 FY22, but de-grew by 32% QoQ. Lower disbursement growth was offset by a lower calculated repayment rate of 13.4% (annualised). AUM growth was seen across the board, with housing loan AUM increasing by 23% YoY. Top-up loans and mortgage loans/flexi LAP saw even stronger momentum, growing 38% and 40% YoY, respectively. The management expects the loan book to grow at 18% for FY23, Edelweiss said.
Net revenue rose 5% QoQ to ₹255 crore, driven by the widening of spreads by 11 bps QoQ to 2.7%. Spread improvement was mainly led by the repricing of yields, resulting in a 35 bps QoQ yield expansion to 8.5%. Edelweiss added that the yield expansion was higher than the increase in the reported cost of funds to 5.8%.
GNPA and NNPA were largely stable on a sequential basis at 0.65% and 0.30%, respectively. Year-over-year, GNPA and NNPA improved by 25 basis points and 27 basis points, respectively. Net interest income (NII) rose 38% YoY and 5.5% QoQ to ₹250 crore.
After the Canara Bank audit due to the whistle-blower complaint, all the branches were audited by an internal audit team and multiple external audit firms. This resulted in the detection of additional irregularities of INR2.43cr, which have been fully provided. Out of the restructured assets, the management anticipates only 5% to slip into NPA from 7% earlier, Edelweiss noted.
On the other hand, Motilal Oswal has a target price of ₹640 on Can Fin homes, implying an upside potential of 15.73 per cent from its previous closing price.
Further, Prabhudas Lilladher has also maintained a 'buy' call on the stock with a target price of ₹675.
An average of 11 analysts polled by MintGenie have a 'buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.