Prabhudas Lilladher has reasserted its bullish stance on Can Fin Homes, retaining a ‘BUY’ call while nudging the target price upward to Rs875. Amid regulatory tweaks, repo rate reductions, and localized headwinds in critical markets, Can Fin Homes demonstrated operational resilience with a strong NII beat, prudent risk controls, and forward-looking growth initiatives. Investors are monitoring key states like Karnataka and Telangana, where recovery remains incremental, but the company’s robust financials, tempered cost structure, and technology upgrades underpin optimism for the year ahead.

Can Fin Homes Q1FY26: A Testament to Stability Amid Headwinds

Prabhudas Lilladher maintains ‘BUY’ with an upgraded target of Rs875, citing a resilient quarter and strong core metrics for Can Fin Homes.
The brokerage underscores a steady performance in Q1FY26 as disbursements met estimates and net interest income outpaced projections—thanks in large part to meticulous cost of funds control. Even in the wake of a 100-basis-point repo rate trim by the Reserve Bank of India, the company’s forward margin guidance remains resolute at 3.5%, down only slightly from FY25, evidencing operational nimbleness.

Key Financial Performance: Beat on NII, Prudent Provisions, Steady Asset Quality

Q1 Net Interest Income (NII) Surpasses Estimates.
Can Fin Homes posted an NII of Rs3.63 billion in Q1FY26, materially above internal projections. This was facilitated by an impressive cost of funds figure at 7.64%, versus the expected 7.76%. Calculated net interest margin (NIM) expanded to 3.9% despite a reported NIM dip to 3.64%—an offset attributable to calculation differentials and resilient loan pricing dynamics.

Asset Under Management (AUM) Posts 9% YoY Growth.
AUM increased steadily to Rs387.7 billion, translating into 9% year-on-year growth. While recoveries in markets like Karnataka and Telangana remained tepid, disbursement momentum for the quarter held steady at Rs20.2 billion, with repayments marginally higher than anticipated, reflecting disciplined client engagement.

Provisions and PAT Marginally Higher.
Total provisioning stood at Rs263 million—above market expectations—driven by enhanced standard asset provisioning. Nevertheless, profit after tax (PAT) beat guidance, closing the quarter at Rs2.24 billion, up by 12% year-on-year.

Geographic Hurdles: Karnataka & Telangana Recovery Lags but Remain Pivotal

Karnataka’s E-khata Bottleneck Progressing.
The ongoing E-khata issue in Karnataka—where conversion of B-khata properties to A-khata status is necessary for legal lending—has seen incremental progress. The state’s recent policy shift to enable such conversions has improved client inquiries, but full execution continues to face structural delays.

Telangana Sees Stabilization but No Major Turnaround.
Telangana, after facing headwinds from property demolition schemes under city development programs, has stabilized. The halt in demolitions has led to better market sentiment and valuation clarity, although loan activity remains lower than pre-policy levels.

Financial Outlook: Guidance and Valuations

Management Projects Conservative but Healthy Growth.
The company has guided for Rs105-110 billion in disbursements for FY26, translating into 12–13% AUM growth. A rebound to 15% AUM growth is expected in FY27, assuming normalcy returns in impacted states. However, longer cycle times on asset turnaround have led Prabhudas Lilladher to assume a more measured 11% CAGR for the loan book in their forecast.

Margins and Borrowing Mix Mitigate Rate Cut Impact.
Although the RBI has slashed the repo rate by 100 basis points, only 5% of the company’s loans are now on a quarterly reset basis—delaying the transmission of reduced rates to borrowers. With 67% of the loan book still indexed to an annual reset, NIM erosion in FY26 is likely to be limited. Management forecasts a marginal decline of 9 bps, taking NIM to 3.46% for FY26.

Borrowing Profile Remains Largely Unchanged.
Funding remains split with bank borrowings accounting for 53%, National Housing Bank (NHB) for 17%, and the remainder sourced through bonds and deposits. Nearly 80% of these borrowings are now repo-linked, ensuring interest costs can remain adaptive to macro conditions.

Asset Quality: Controlled Delinquencies and Strong Risk Metrics

Gross NPLs (GNPA) Creep Up Slightly; Coverage Holds.
Gross non-performing loans (GNPA) settled at 0.98%, while net NPLs stood at 0.54%. Although the provision coverage dipped to 45%, management maintains that the risk remains adequately cushioned. FY26 credit cost is projected at merely 15 basis points, underscoring prudent default management.

Portfolio Quality: Robust Credit Scoring and Minimal Stress.
With over 80% of borrowers holding CIBIL scores above 700 and less than 9% falling into the 'new-to-credit' category, the lender’s book quality is notably sound. This continues to reflect Can Fin’s cautious underwriting and legacy as a low-risk housing lender.

Operational Highlights: Expansion, Cost Control, and Technology Investments

Strategic Network Expansion Underway.
The company has added 25 branches and 6 zonal offices—mainly in the western and northern regions of India—as part of its nationwide network build-out. An additional 15 branches are targeted for H1FY26. Over the longer run, the company aims to scale to 300 branches by FY28.

Operating Expenses and Cost-to-Income Under Watch.
Operational expenditure surged by 39.7% year-on-year due to increased hiring and establishment costs. While this temporarily inflated the cost-to-income ratio, it remains within forecasted bounds: 18% for FY26 and expected to be around 19% for FY27.

Tech Transformation Initiatives Launching Shortly.
As part of its inclination towards operational modernization, the company will soon initiate Phase I of its IT transformation—starting with new ALM and treasury systems in September, followed by a core lending system overhaul in November.

Competitive Positioning and Strategic Advantages

Minimal Bank Competition in Core Segments.
Can Fin Homes’ average ticket sizes for home and non-home loans stand at Rs2.4 million and Rs1.4 million, respectively—segments where large banks typically have limited presence. This niche competency continues to keep pricing power and borrower loyalty intact.

Unyielding Focus on Prudent Lending; No Co-lending Plans.
Management reconfirmed its decision to stay away from higher-risk co-lending models or aggressive expansion, choosing instead to stick with time-tested prudential practices and organic growth.

Valuation Metrics and Investor Levels

Prabhudas Lilladher's Investment Thesis for Can Fin Homes

Verdict – ‘Buy’ Maintained with Upside of Nearly 8%.
A stable operating framework, superior profitability metrics, low credit risk, and cautious geographic expansion combine to make Can Fin Homes a compelling proposition in the mid-cap financial space. The revised target of Rs875 by Prabhudas Lilladher implies a nearly 8% upside from current levels, providing investors with a window to participate in India’s next leg of affordable housing demand.

While regional execution risks—particularly in south India—remain an area of concern, Can Fin’s proactive engagement with state policy changes, consistent cost controls, and clean loan book provide a hedge against wider market volatility. Investors seeking stable, low-risk alpha should find Can Fin Homes well-positioned.