Sharekhan Says Buy This Midcap Housing Finance Stock For 28% Return, NII Grew 31% YoY

With rapid urbanization, improved affordability and supportive government incentives for the affordable housing segment, the brokerage firm housing finance companies to grow exponentially going ahead, especially the affordable housing segment. Can Fin Homes commands a premium valuation due to its ability to deliver superior returns ratios metrics, superior growth and its asset quality continues to be best in class among its peers. Sharekhan, a leading brokerage firm recommends investors buying the stock of Can Fin Homes Ltd.

Stock To Buy: Target Price

The Current Market Price (CMP) of Can Fin Homes Ltd. (CFHL) is around Rs. 525. Sharekhan has estimated a Target Price for the stock at Rs. 670. This stock has the potential to give a 27.61% return, in the upcoming 1 year. It is a mid-cap stock with a market capitalization of around Rs. 6,873 crore.

Stock Outlook
Current Market Price (CMP)	Rs. 525
Target Price	Rs. 670
Potential Upside	27.61%
52-week high share price	Rs. 703
52-week low share price	Rs. 406.65

Strong Financials

The company's net interest income (NII) grew by 31% y-o-y. NIMs declined by 12 bps q-o-q reported at 3.57% in Q2FY23. The yield on average loans (cal.) increased by 31 bps q-o-q while Cost of Funds (cal.) increased by 46 bps q-o-q. PAT grew by 14.6% y-o-y but was down 12.6% q-o-q. Loan growth was reported strong, its loan book grew by around 22.2% y-o-y and 4.7% q-o-q. Disbursements increased by 1.7% y-o-y / 30.4% q-o-q. GNPA also improved sequentially to 0.62% vs 0.65% in Q1FY23 while NNPA increased to 0.35%.

Stock Valuation - mentioned by Sharekhan

Giving a buy rating the brokerage firm mentioned, "Currently, at the current market price, the stock trades at 1.9x/1.6x its FY2023E and FY2024E BV. The company is one of the best plays in affordable housing finance segment with pristine asset quality and superior underwriting practices. It navigated the stiff competition from banks and is moving towards strong growth trajectory. Can Fin Homes also enjoys strong parentage and superior credit ratings, which enables it to raise funds at lower costs. We expect Can Fin Homes to deliver RoE of ~ 17% over FY22-24E."

Stock advantages: management guidance

Can Fin Homes guided for ~2.5% spreads and ~3.5% NIMs over the next few quarters. Can Fin Homes expect to sustain superior asset quality going ahead with credit cost guidance at 12-14 bps on higher end for full year. New MD & CEO expected to join by Q3FY23-end. Company also in process of hiring CRO and CFO. Additionally, the management is cognisant of hiring a professional from private sector as its MD & CEO, which can remove a big overhang on the stock.

Company Portfolio

CFHL operates in the housing finance segment providing loans to individuals and non-housing loans, including mortgage loans, site loans, loans for commercial properties, loan against rent receivables, top-up loans, and personal loans. The company has 171 branches across 21 states and Union Territories. The company offers housing loans and mortgage loans at competitive interest rates both to salaried and self-employed borrowers. The company focuses on housing loans to individuals with 90% of the book constituting to home loans while the rest comes from the non-housing segment.

Disclaimer

The above stock was picked from the brokerage report of Sharekhan. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.