This Small Cap NBFC Stock Gave 13.3% In 3 Months, Brokerage Sees 20% Upside, Recommends Buy

Motilal Oswal has recommended a "buy" on small-cap NBFC sector stock, Can Fin Homes Ltd. (CANF) with a target price of Rs 630 apiece. The brokerage claims a potential upside of 20% in the share price from its current level. The company has a market capitalisation of Rs 6,997.92 crore.

Stock Outlook, 52-week low/high and returns

The current market price (CMP) of the stock on NSE is Rs 525.55 apiece. The stock's recorded 52-week high on NSE is Rs 685 apiece and the 52-week low is Rs 406.65 apiece, respectively. The stock has performed well over the past 5 years, however, it has not given positive returns in the past 1 month. It fell 3.74% in 1 month and surged 13.3% in 3 months. In 1 year, it fell 6.91%, whereas, in 3 years it gave the highest returns 34.33%.In 5 years, it gave 10.69% positive returns. 

Re-rating still contingent on CANF's ability to identify a successor

The brokerage said, "CANF, in our view, is a franchise which has proven its astute underwriting, strong risk management, and inclination to deliver industry-leading loan growth in the mortgage sector at least (if not more) over the last decade. This report is expected to draw references from our recent interaction with the senior management of CANF in their corporate office at Bangalore, India." 

It added, "What we want to highlight through this report is that despite the vacant MD/CEO position at CANF for over a month, the business momentum under the interim leadership of DMD Amitabh Chatterjee and CFO Prashanth Joishy has remained strong. CANF has long demonstrated that it is a processes-driven organization and that it will continue to demonstrate the same ethos and trajectory even under the leadership of the successor to ex-MD Girish Kousgi." 

Management shared that the Board of Directors (BoD) at CANF is keen to onboard a new MD/CEO from the mortgage sector itself (potentially from the private sector, in our view) by offering a compensation in line with the markets (even though the pay-scale at CANF, which is a subsidiary of public sector Canara Bank, is otherwise lower). 

The brokerage said, "We believe that the intimation to the exchanges would only come (and appropriately so) when the successor formally joins CANF. While identification of the new CEO is in very advanced stages, it is difficult to put a timeline to when the new candidate's name will be announced." 

Buy for a target price of Rs 630/share

The brokerage has said, "While there could be near-term transitory compression in margins because of the delay in transmitting higher borrowing costs to the customers, we believe it can sustain NIM of ~3.3-3.4% in the medium term. We model a Loan Book/PAT CAGR of 17%/~19%, respectively, over FY22-FY25E. CANF is a franchise with moats on the liability side and has always exhibited superior asset quality. For a RoA/RoE of 1.9%/17% in FY24E and triggers for valuation re-rating if the new management team (of MD&CEO/CFO/CRO) can gain investor confidence, we reiterate our BUY rating with a TP of INR630 premised on 1.8x Sep'24 P/BV."

According to Motilal Oswal, the Key downside risks are a) inability to attract good talent for senior leadership positions and b) change in parentage (if at all) which could pose a risk to its credit rating and ability to borrow at such low interest rates.

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.