Earnings Call Transcript Analysis Report #
Financial Performance #
Key Financial Metrics #
- Disbursements: INR 1,879 crores (flat compared to expectations of INR 2,300-2,400 crores).
- AUM Growth: 9% for the first three quarters.
- Gross NPA: 0.92% (slight increase).
- Provisioning: Increased, but expected to be marginal in Q4. Credit cost guided at 15 bps for the year.
- Yield on Books: 10.14% for 9 months (up from 10.12% in the previous quarter).
- Cost of Borrowing: Down by 2 bps for 9 months.
- Spread: Marginally improved, guidance maintained at 2.5%.
- NIM: Guidance maintained at 3.5%.
- ROE: Expected to close at 17%+ for the year.
- ROA: Expected to close at 2.1%+ for the year.
- Cost-to-Income ratio: Marginally came down.
Comparison with Previous Periods #
- Disbursements were flat compared to Q2, significantly below the projected 5-10% growth.
- Yield improved slightly (2 bps) compared to the last quarter.
- Cost of borrowing decreased by 2 bps compared to the last 9 months.
- SMA Stage 2 remained relatively stable. Slight Increase on SMA 0.
Revised Guidance/Forecasts #
- Q4 disbursements expected to be “marginally in the range” of Q4 of the previous year.
- Spread and NIM guidance maintained at 2.5% and 3.5%, respectively.
- ROE and ROA targets maintained at 17%+ and 2.1%+, respectively.
- FY26 Guidance. 15bps credit costs. Cost-to-income ratio approximately 18-18.5%.
- FY26 dispersement target INR 12,000 crores.
Areas of Growth/Decline #
- Disbursement growth was negatively impacted by issues in Karnataka (e-khata) and Telangana.
- Positive growth was seen in North, Rajasthan, Gujarat, and Tamil Nadu.
- Yield on advances improved due to a focus on SENP and LAP products.
- Cost of borrowing was reduced due to a shift to repo rate/T-bill linked loans and NHB funding.
Strategic Initiatives & Business Updates #
Major Strategic Announcements #
- Finalized a major IT transformation project with IBM, to be implemented in Q3 of the next financial year (October-December 2025).
New Products/Services/Markets #
- Opened up the LAP (Loan Against Property) product to new customers (previously only for existing customers).
- Increased focus on the SENP (Self-Employed Non-Professional) segment.
Operational Changes #
- Shifted all bank borrowings to be linked to either repo rate or T-bills (no MCLR-linked borrowings).
- Raised INR 1,600 crores from NHB at a lower rate (7.6%).
- Reviewed and closed/merged 10 branches, opening 10 new branches in different geographies.
- 15 new branches are in the pipeline.
- Strengthened internal assurance functions.
Ongoing/Completed Projects #
- IT transformation project with IBM is the major ongoing project.
Market & Competitive Landscape #
Industry Trends #
- Some lenders report volume declines, with growth driven mainly by value. Can Fin Homes states they have been able to reach the same amount of inquiries, although December was a little “soft”
- Rate competition is not as significant a factor as before.
Competitive Positioning #
- Private banks have reduced rate competition, but competition from NBFCs and PSU banks is not explicitly stated as having settled.
- Can Fin Homes focuses on speed of loan delivery, ability to serve specific segments, and geographical penetration as key differentiators.
Market Challenges/Opportunities #
- Challenges in Karnataka (e-khata issue) and Telangana (government review of land approvals) are impacting the entire sector.
- Opportunity to expand product and segment range (LAP, SENP).
Market Share/Positioning #
- Karnataka contributes about 28% (down from 34%) and Telangana about less than 20% (down from 15%) of the business.
Risk Factors & Challenges #
Concerns/Challenges #
- Lower disbursements due to e-khata issues in Karnataka and regulatory reviews in Telangana.
- Slight increase in Gross NPA.
- Dependence on the release of e-khatas in Karnataka for future growth.
- Potential disruption from the IT transformation project.
- Stress in customer´s cash flow.
Regulatory Issues #
- The e-khata issue in Karnataka is a regulatory/operational challenge.
- Government reviews of land approvals in Telangana are impacting sentiment and business.
- Discussion about RBI guidelines on parent and subsidiary not doing the same kind of business (Canara Bank being the parent). No clarity at present on implications.
Operational Constraints #
- The e-khata issue is preventing property registrations, impacting disbursements.
- Implementation of the new IT system could cause temporary disruptions.
- Check bounce charges, and the fact that advance EMI are not held, impacts SMA numbers.
Forward-Looking Statements #
Outlook/Projections #
- Expect disbursements to be in the range of Q4 of last year, potentially better if Karnataka improves.
- Maintain guidance of 2.5% spread and 3.5% NIM.
- Expect to close the year with 17%+ ROE and 2.1%+ ROA.
- FY26 Target AUM growth of 15%
Commitments/Targets #
- Targeting INR 12,000 crores disbursement for FY ‘26.
- Aiming for a cost-to-income ratio of 18% - 18,5% in FY ‘26, due to IT investments.
- Target of 15 new branches in Q4
- SENP + professionals will not go over 35%
Planned Investments #
- Significant investment in the IT transformation project (INR 250-300 crores).
Sentiment about Future Performance #
- Cautiously optimistic, with performance heavily reliant on resolving the Karnataka e-khata issue.
- Confident in maintaining spread and NIM targets.
Q&A Insights #
Most Pressing Analyst Questions #
- Impact of the e-khata issue and its expected duration.
- Reasons for the decline in approvals.
- Details on the SMA 0 accounts and check bounce charges.
- Strategy for branch expansion.
- Impact of the IT transformation project on business and costs.
- Guidance on credit costs and cost-to-income ratio.
- Source of NHB refinancing (Affordable Housing Fund vs. regular refinance).
Management’s Responses #
- Provided detailed explanations of the issues in Karnataka and Telangana.
- Explained the reasons for the increase in SMA 0 (check bounce charges).
- Detailed the branch expansion and rationalization strategy.
- Acknowledged potential disruption from the IT project but emphasized efforts to minimize it.
- Provided clear guidance on credit costs and cost-to-income ratio.
New Information Revealed #
- Detailed breakdown of the SMA 0 portfolio, highlighting the impact of check bounce charges (INR 770 crores).
- Specific numbers on the progress of e-khata issuance in Karnataka.
- Breakdown of NHB refinancing (INR 400 crores from AHF, INR 1,200 crores from regular refinance).
- Quantified impact of issues in Karnataka and Telangana on disbursements (INR 432 crores).
Management Tone & Sentiment #
Overall Tone #
- The tone was cautiously optimistic. While acknowledging significant challenges, management expressed confidence in their strategies and long-term targets. There’s a clear sense of addressing problems head-on.
Changes in Language #
- More emphasis on the impact of external factors (e-khata, Telangana regulations) compared to previous calls.
Areas of Confidence/Concern #
- Confident in maintaining spread and NIM, and in the long-term growth prospects.
- Concerned about the e-khata issue in Karnataka and its impact on disbursements.
- Confident about IT project but careful about potential disruptions.
Most Important Takeaways #
External Challenges: Can Fin Homes faced significant headwinds in Q3 FY25 due to regulatory/operational issues in Karnataka and Telangana, leading to flat disbursements and missed growth targets.
Strategic Focus: The company is actively pursuing strategic initiatives, including a major IT transformation, expansion into new customer segments (LAP, SENP), and optimization of its branch network.
Financial Resilience: Despite the challenges, Can Fin Homes has maintained its profitability guidance, improved its yield, and reduced its borrowing costs.
Future Outlook: The near-term outlook is heavily dependent on resolving the e-khata issue in Karnataka. The company remains optimistic about long-term growth, targeting 15% AUM growth in FY26.
IT Transformation: The major IT project with IBM is a key focus area, with potential for both significant improvements and short-term disruptions.