Can Fin Homes Shares Gain After Jefferies Raises Target Price
The brokerage raised the target price on the mortgage lender to Rs 850 per share from Rs 705 earlier.
Shares of Can Fin Homes Ltd. rose on Wednesday after Jefferies raised its target price and earnings per share estimates for the stock.
The brokerage raised the target price on the mortgage lender to Rs 850 per share from Rs 705 earlier. The new price implies a 19% upside from the closing price on Tuesday.
The brokerage has also raised the company’s FY24–25 EPS estimates by 1–2% as a consequence of revised estimates on net interest margins, operating expenditures, and tax rates.
Jefferies maintained a "buy" rating on the stock, anticipating that the company will benefit from an expansion in net interest margins. A fall in deposit rates is expected to result in better margins with the decline in system-wide interest rates and a lag in the re-pricing of home loan rates.
Over the next three years, NIMs may gradually increase as interest rates stabilise, Jefferies said.
Here is what Jefferies said on Can Fin Homes:
Maintains a 'buy' on the stock. The price target was revised to Rs 850 based on 2.2x the March 25 expected book value, which is above the historic average. This will give scope for positive NIMs and ease the overhang related to the management transition.
An upside scenario forecasts a Rs 935 target price, while a downside scenario states Rs 570.
Forecasts 18% EPS CAGR and 18% ROE over FY23–26.
Forecasts NIMS of 3.55% in FY24.
A tailwind in NIMs will be partly offset by lower yields in the company’s new segment, which is tying up with mid-size builders to offer home loans in a set of pre-approved projects.
17% loan CAGR is estimated over FY23–26e, mainly driven by strong demand for mid-ticket housing loans in the salaried segment and competitive funding costs.
Can Fin’s investment in tech infrastructure and platform upgrades will lift operational expenditure intensity over FY 2024–25.
Stable asset quality to support steady credit costs.
The company plans to add 10–15 branches per annum, skewed towards non-Southern states. This will facilitate growth in its non-south geography mix to 40%.
A slowdown in loan growth and deterioration in asset quality are some of the downside risks, according to Jefferies. A higher than expected slippage from the non-banking financial companies restructured books also poses a risk.
Loan growth in the current financial year is expected to be 18–20% because of a higher quantum of loans to home buyers in pre-approved projects, said Suresh Iyer, chief executive officer at Can Fin Homes.
The company's provisions are adequate to absorb potential slippages, he said.
Shares of Can Fin Homes gained 4.14% to Rs 747.65 apiece, compared to a 0.44% gain in the Nifty as of 12:49 p.m.
The total traded quantity so far in the day stood at 3.4 times the 30-day average volume.
Of the 21 analysts tracking the stock, 18 maintain a ‘buy’ rating, two recommend a ‘hold,’ and one suggests a ‘sell,’ according to Bloomberg data. The consensus price target implies a downside of 3.7% over the next 12 months.