Can Fin Homes Q4 FY25 earnings call

Can Fin Homes reported a robust Q4 FY25, with overall disbursements growing 31% compared to Q3. This growth was significantly bolstered by a recovery in Karnataka, where disbursements increased by approximately Rs. 200 crores QoQ, reaching Rs. 300 crores in March. For the full year, North, West, and Tamil Nadu zones demonstrated strong growth of 36%, 16%, and 27% respectively. The company is confident in achieving a 20% disbursement growth target for FY26, expecting Karnataka to return to 20%+ growth and Telangana to show positive growth from its current base of Rs. 100 crores/month.

Asset quality showed improvement, with SMA-0 reducing from Rs. 770 crores to Rs. 700-750 crores by the end of Q4, and NPA decreasing to 0.87%. Management reiterated its guidance to keep NPA below 0.90%. The company recorded an actual write-back of Rs. 10 crores in ECL provisions during Q4. However, as a prudent measure, an additional management overlay of Rs. 25 crores was created, bringing the total management overlay to Rs. 59.28 crores (15-17 bps of the overall book size). Excluding this overlay, the credit cost for the year was approximately 13 bps, which is lower than the guided 15 bps.

The company experienced two rate cuts totaling 50 bps (25 bps in February and 25 bps in April). The benefit from bank borrowings (55% of the portfolio, 80% linked to repo) is expected to be 5-7 bps effective from April 1st. Additionally, CP rates (7% of the book) have fallen below 7%. The combined effect of these rate cuts is expected to translate to a 10 bps benefit by the end of the current month, which will be considered for pass-on to customers after the next ALCO meeting. Management anticipates no immediate impact on spreads as the liability side benefits are realized first, and incremental lending rates from HFCs and private banks have not seen major reductions.

Can Fin Homes is continuing its strategy to shift towards the SENP (Self-Employed Non-Professional) category and expand in North and Western regions. The housing portfolio (including CRE) has reduced from 89% two years ago to 85%, with a target to reach 80% in the next three years. The salaried vs. SENP mix has shifted from 72:28 to 70:30, with a target of 65:35 in the next three years. The company opened 15 new branches during the year, bringing the total to 234, and plans to open another 15 in FY26, targeting 249 branches by year-end, predominantly in the North and West.

The e-Khata issue in Karnataka, particularly the change in registration process, significantly impacted the state's growth, causing it to drop from 20% in H1 FY25 to 3% for the full year. While the issue has been sorted in the Bangalore Municipal Corporation limits, it is still pending in UDA and panchayat areas. Management expects Karnataka disbursements to return to Rs. 75 crores/month soon. Telangana, which faced a 'sentiment issue,' has seen its monthly disbursement base improve from Rs. 70 crores to Rs. 100 crores, with management expecting 15-20% growth from this lower base in FY26.

The dividend payout ratio for Q4 FY25 was 18.9%, a deliberate increase from the previous 8-10% range to achieve a 'healthy' 20% for retail shareholders. Going forward^⏳, the company intends to limit the payout ratio to the 18-20% range. In terms of funding, the company made an additional investment of Rs. 400 crores for LCR purposes, driven by increased regulatory requirements. The total borrowing, after correcting a presentation error, stands at Rs. 35,289 crores, an increase of Rs. 3,400 crores, which aligns with the AUM growth.