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Hidden Gem: CanFin Homes - growth & earnings to pick up(Target Price Rs 1000)

ICICIdirect Research 24 Oct 2025 DISCLAIMER

CanFin Homes (CFHL) was promoted by Canara Bank in 1987, with ~30% stake as of Sep 2025. Housing loans comprise ~87% of book; of which ~70% is to salaried customers. Average ticket size is ₹25 lakh for housing, ₹14 lakh for non-housing loans.
Canfin Homes has been best in classHFC player with a robust business model & underwriting practice, which resulted in healthy earnings growth with GNPA <1% across cycles. 
Canfin Homes reported healthy performance in Q2FY26. Steady disbursement at ₹2545 crore (6.9%), was offset by pre-payment resulting in AUM growth being broadly steady at 8.4% YoY/ 2.3% QoQ to ₹39,657 crore. NII grew 19.1% YoY to ₹405 crore (up 11.5% QoQ), driven by 27 bps YoY/ 38 bps QoQ in margin to ~4%, on the back of reduction in cost of borrowing. Opex remained elevated, keeping CI ratio at 18.55%, however, healthy top-line resulted in 18.9% YoY growth in earnings at ₹251 crore with RoA at 2.46%. Asset quality remained broadly steady with GNPA at 0.94%, down 4 bps QoQ. 
Optimistic on growth; guidance reiterated: Management has reiterated guidance targeting disbursement of ₹10,000–10,500 crore in FY26E, implying ~12–13% AUM growth. Such momentum is expected to be aided by branch addition (14 added out of planned 15) and improving disbursement across geographies. 
Yield growth is expected to be supported by a gradual shift in portfolio mix toward the higher-yielding non-home loans, aiming for a 20% share of AUM and an increased focus on self-employed segment, with the salaried-to-self-employed mix targeted to reach to 65:35 over the next 2-3 years.
Lower funding cost and asset quality resilience to aid earnings: Incremental borrowing cost has moderated to ~7.1%, and further savings are expected as upcoming term loans are repriced and NHB's lending rates are anticipated to be revised downwards. Thus, management has maintained guidance of margins at 3.75% and spreads at 2.75%. 
Given steady asset quality, healthy coverage, credit costs guidance is maintained at ~12-15 bps. Tech initiatives is expected to keep CI ratio elevated at 19- 19.5% in FY26, with improvement anticipated in FY27E as business growth accrue. Thus, margin resilience, backed by a favourable funding mix and controlled asset quality, offers strong earnings visibility with RoA to sustain at 2.1-2.3%. 
Margin resilience coupled with strong asset quality is expected to sustain RoA at 2-2.3% in FY26-27E. Revival in business growth to act as trigger to boost valuation. Thus, we value CanFin Homes at ~1.9x FY27E BV and revise target price to ₹1,000 (earlier ₹910). Maintain Buy rating.

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