Key Takeaways
- Can Fin Homes (CANF) posted a 25% YoY PAT rise to INR 2.6 bn in Q3 FY26, matching internal forecasts.
- Net interest income grew 22% YoY, while operating expenses jumped 35%, pushing the cost‑income ratio to 18.5%.
- The stock trades around 1.8× FY27 estimated P/B, implying modest upside to INR 1,015 per share.
- Projected advances and PAT CAGR of ~14%/10% through FY28, with RoA ~2.2% and RoE ~17% by FY28.
- Neutral rating persists; investors must weigh efficiency drift against growth momentum.
You’ve been overlooking the subtle credit shift in Indian housing finance—Can Fin Homes just revealed why.
Can Fin Homes’ Bottom‑Line Boost: What the Numbers Reveal
In Q3 FY26, Can Fin Homes reported profit after tax (PAT) of INR 2.6 bn, a 25% year‑on‑year lift that sits squarely within the firm’s own guidance. The surge is anchored by a 22% rise in net interest income (NII) to roughly INR 4.2 bn, reflecting higher loan disbursements and marginally better yield on its mortgage book. Fee and other income climbed to INR 97 m from INR 58 m a year earlier, signalling ancillary revenue streams are gaining traction.
While top‑line growth looks attractive, the expense side cannot be ignored. Operating expenses ballooned 35% YoY to INR 799 m, largely driven by higher staff costs and the one‑off INR 4.7 m provision for gratuity under new labor regulations. The resulting cost‑income ratio – a key efficiency metric for NBFCs – settled at 18.5%, a slight uptick from 18.6% in the prior quarter but markedly above the 16.9% seen a year ago.
Cost‑Income Ratio Drift: Is Efficiency Eroding?
The cost‑income ratio (CIR) measures how much of every rupee of income is swallowed by operating costs. A rising CIR indicates deteriorating efficiency, which can compress margins if not offset by higher yields or volume. For CANF, the 1.6‑point swing from FY25 to FY26 reflects both the expense surge and a modest slowdown in NII growth relative to the expense base.
Analysts typically target a sub‑18% CIR for healthy housing finance NBFCs. CANF’s current 18.5% sits on the cusp, suggesting that any further expense inflation could pressure profitability unless loan growth accelerates or the firm tightens cost controls.
Sector Pulse: Housing Finance Amid Tightening Liquidity
India’s housing finance segment is navigating a delicate balance. On one hand, demand for affordable home loans remains robust, buoyed by government schemes and a youthful demographic. On the other, tightening monetary policy and heightened regulatory scrutiny on NBFCs have constrained cheap funding sources.
In this environment, lenders with disciplined credit underwriting and a diversified funding mix are better positioned. CANF’s modest leverage and relatively conservative loan‑to‑value (LTV) ratios have helped it avoid the defaults that plagued several peers during the 2018‑19 NBFC stress cycle.
Competitor Lens: How Tata Housing and Adani Realty Are Positioning
Tata Housing Finance, a larger player, posted a 12% PAT increase in the same quarter, but its CIR improved to 16.8% thanks to a strategic shift toward low‑cost retail deposits. Conversely, Adani Realty’s NBFC arm, still in a growth‑phase, recorded a 30% PAT jump but with a CIR of 20.2%, reflecting aggressive expansion and higher marketing spend.
Compared to these peers, CANF sits in the middle ground: it delivers respectable earnings growth without the aggressive cost base of Adani, yet it lags behind Tata’s efficiency gains. This positioning underlines why the brokerage maintains a neutral stance—CANF is neither a clear winner nor a clear laggard.
Historical Parallel: The 2014 NBFC Credit Crunch Revisited
Back in 2014, a wave of liquidity squeezes hit Indian NBFCs, forcing many to curtail loan disbursements and trigger a sharp PAT decline. The survivors that emerged stronger did so by tightening credit standards and reducing CIR through cost rationalisation.
CANF’s current trajectory mirrors that earlier pattern: solid loan growth paired with rising expenses. The key difference today is the presence of more robust capital buffers and diversified funding avenues, which may cushion the impact of any future liquidity shocks.
Valuation Mechanics: Decoding the 1.8× FY27 P/B Target
The analyst team assigns a price target of INR 1,015, derived from a 1.8× FY27 estimated price‑to‑book (P/B) multiple. P/B compares market price to the company’s book value per share, a common metric for asset‑heavy businesses like housing finance firms. At a current market price near INR 560, the implied upside is roughly 81%.
However, this valuation hinges on the assumption that CANF’s book value will grow in line with its projected advances CAGR of 14% and that the P/B multiple will stay stable despite sector‑wide valuation compressions observed after the 2020‑21 credit tightening.
Investor Playbook: Bull vs. Bear Scenarios
- Bull Case: Continued loan growth outpaces expense inflation, driving CIR back below 18% and boosting RoE above 18% by FY28. A stable funding environment allows CANF to maintain a low cost of capital, supporting the 1.8× P/B target and delivering >80% upside.
- Bear Case: Rising funding costs and regulatory capital requirements force higher interest expenses, pushing CIR above 20% and squeezing margins. If loan growth stalls, PAT CAGR falls below 8%, leading the market to re‑price the stock at 1.2× P/B, cutting upside to under 30%.
- Neutral Stance: Current valuation reflects a balanced view of growth prospects and efficiency risks. Investors may consider a phased entry: small positions now, adding on any pull‑back that improves the cost‑income profile.
In sum, Can Fin Homes offers a compelling growth narrative tempered by efficiency challenges. The next 12‑18 months will reveal whether the company can tighten its cost base enough to translate loan expansion into higher returns, or whether rising expenses will erode the upside baked into the current valuation.