Jefferies, the foreign brokerage firm, continues to hold a ‘buy’ stance on Can Fin Homes, foreseeing substantial growth potential of over 25% in the stock. This positive outlook is rooted in the company’s actions to enhance internal controls following a recent fraud case at its Ambala branch. Can Fin Homes is also poised to benefit from robust demand for home loans and a steady asset quality, according to Jefferies.
The brokerage firm recently engaged with Can Fin Homes’ CEO, Suresh Iyer, who reported no major issues detected at other branches after a thorough review. In July of this year, the company, which is promoted by state-owned Canara Bank, uncovered fraudulent activities amounting to Rs 38.53 crore at its Ambala branch. The fraud involved three employees misappropriating funds by transferring them to personal bank accounts, primarily by abusing their cheque signing authority.
Jefferies noted, “Can Fin conducted detailed reconciliation of accounts (debit balances vs. disbursements) at each of its 193 branches for the period April 21-July 23 after employee fraud was detected at Ambala branch. No major issues/ losses were detected beyond the Rs 385-390mn initially assessed.”
In a proactive effort to tighten internal controls, Can Fin Homes has implemented measures such as centralized reconciliation, daily cash management monitoring at the head office for all branches, and the establishment of a fraud control unit. Additionally, the company is in the process of transitioning to centralized disbursements within the next few weeks, Jefferies reported.
Key Growth Drivers:
- Strong Housing Demand: Demand for housing in the mid to high-ticket segment remains robust, which should contribute to growth.
- Recovery in Disbursements: Despite some impact on disbursements due to the branch fraud issue, the management anticipates improved performance in the September quarter and further enhancement in H2 FY24.
- New Projects: Can Fin Homes has approved approximately 15 projects under the new advanced processing facility segment (home loans in approved projects). Although incremental business may have a lag, it plans to add 14 branches in FY24.
- Loan Growth: The management has upheld its loan growth guidance of 18 percent in FY24, aligning closely with Jefferies’ estimate of 17 percent.
For the first quarter ending June 30, 2023, Can Fin Homes reported a noteworthy 13.1 percent year-on-year increase in net profit, amounting to Rs 183.5 crore. Additionally, the net interest income (NII) surged by 13.9 percent to reach Rs 285.1 crore compared to Rs 250.4 crore in the same quarter of FY23.
While the management expects net interest margins (NIMs) to remain within a certain range (Q1 at 3.56 percent), Jefferies sees potential for a positive surprise, projecting NIMs of 3.63 percent in FY24. Moreover, the asset quality environment remains stable.
Jefferies maintains its ‘buy’ recommendation for Can Fin Homes, accompanied by a target price of Rs 970. This target price signifies a substantial upside potential of over 25% from the current trading level of Rs 760.
Year-to-date, the company’s shares have surged by an impressive 40 percent, while the one-year return stands at a solid 17 percent.
