Can Fin Homes Limited (511196) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, good day, and welcome to the Can Fin Homes Q1 FY '27 Conference Call hosted by Investec Capital. [Operator Instructions] Please note, this call is being recorded. I now hand over the conference to my colleague, Nidhesh Jain from Investec. Thank you, and over to you, Nidesh.

Thank you, Sapna. Good afternoon, everyone. Welcome to the Quarter 1 FY 2027 Earnings Conference Call of Can Fin Homes Limited hosted by Investec Capital. We will start with management commentary, followed by a Q&A session. To discuss the financial performance of Can Fin Homes and to address your queries, we have with us Mr. Suresh Iyer, MD and CEO; Mr. Shailesh Kumar Singh, Deputy MD; Mr. Prakash, President; Mr. [indiscernible] Kumar, President and and Mr. Abhishek Mishra, CFO of Can Fin Homes Limited. Please note that this call is being recorded. I would now like to hand over the call to Mr. Suresh Iyer for his opening comments. Over to you, sir.

Yes. Good afternoon, everyone. Thank you, Nadesh and welcome to this earnings for Q1 FY '27 performance of Can Fin. I'll just start by giving a brief of the performance as a few highlights. Obviously, all these things are covered in the investor presentation. However, I'll just give you some brief and some commentary on these aspects also, and then we can open it up for question answers. First of all, disbursements -- in terms of disbursements we had given a guidance or a projection that in Q1, we'll be doing INR 2,500 crores, Q2 INR 3,000 crores and INR 3,500 crores and INR 4,000 crores in the third and fourth quarters and so on. So I get INR 2,500 crores, which was what was plan what was projected, we have achieved INR 2,609 crores. So we have been able to do more than what we had originally projected. And this has been possible because of a positive growth across all our geographies. That is we have 6 zones and all the 6 zones, including Karnataka and Telangana, we've had a positive growth. And Karnataka actually, with the 18% growth over Q1 of last year is actually the lowest in terms of the growth zone-wise growth. So we've had a growth across all the geographies. Plus, we've also had a positive contribution coming from the sales team as well as from the new branches that were opened post March 2023, which has helped us in achieving this disbursement. And that is a positive thing, which is one of the drivers for this growth. In terms of breakup of this growth, if you see, we've had a salaried and self-employed, both have grown compared to last year corresponding period. So salaried in absolute terms has grown at 21%. The overall growth for the quarter has been 29%. That is against INR 2,015 crores. The current quarter, we have done INR 2,609 crores. So that is a 29% both. But within that, the salaried segment has grown at 21% and the SENP has grown 44%. Similarly, if you break up between the housing and the nonhousing, the housing in Q1 FY '27 has grown at 28% compared to the Q1 of housing figure of last year. And -- whereas the nonhousing that is NHL has grown at 32% and combined, there is a 29% growth. So basically, across all the [indiscernible] metrics, PCR has been a growth across all the 4 things. The next, if you look at what is the challenge, however, has been that the prepayments or the rundown has been a little fair compared to even Q4 of last year. So we had this challenge and 1 of the expectation or one of our planning was that post this conversion from annual to quarterly reset, you may probably see a reduction in our BT house. However, this has not happened. In fact, as against INR 1,730 crores rundown in in Q1 -- Q4 of last year this thing, we are having a rundown of INR 1,857 crores. So basically, there is almost INR 127 crore increase in the rundown. However, if you break up the same run down, there's a -- what comes out is BT out, which which was INR 400 crore in Q4 of last year has increased to INR 408 crores. So there is not a -- there is no major increase or higher BT outs, which has resulted in this rundown. It is just marginal INR 8 crore increase compared to Q4 of last year. Same way if you look at loan closures other than BT, that is cases where customers have closed their loans from their own funds or because they are selling property or where we have initiated the sale under surface, that amount last year -- last Q4 was INR 360 crores. As against that, it has increased to INR 377 crores. So both these things have not actually increased in a major manner. However, what has actually increased resulting in the higher rundown, is that part print payments from the customers and amortization particularly have results that have have increased. So basically, when the amortization of the -- sorry, reset happened from annual to quarterly. Most of the customers were under a change in EMI -- sorry, change in our tenure option. So the EMI was constant and the tenure was changing. So in all these cases, when the reset change from annual to quarterly and the rate of industry was passed on 0.5 percentage, tenure has actually crashed. And the EMI has remained the same because of which higher amount of proportion has gone towards the principal. So as against INR 976 crores in Q4 of last year, which was part prepayment amortization, the number has gone up to INR 1,072 crores. So basically, this is the main reason why the rundown has been higher, and we will have to now work on this particular aspect. Now coming to the AUM growth. So last year, we had an overall AUM growth of 10.4%. And this year, in Q1, it has inched up to 10.8% or 11% as we have reported, but [indiscernible] in real. This has obviously been because of INR 755 odd crores, which has been added to the book from the disbursements net of the rundown. And if you actually see the disbursement was projected at INR 2,500 crores. And for the full year, we had projected that at INR 13,000 crore disbursement for the full year, INR 7,000 crores would be the rundown, which means approximately INR 1,750 crores every quarter against which this quarter, the rundown has been [indiscernible], so almost INR 100 crores more than what we had anticipated. But actually, this has also been offset by the disbursement which has been higher by INR 109 crores against INR 2,500 crores, we have done INR 2,609 crore. So basically, whatever was the expected increase in our AUM, which we had projected in the -- for the full year, the Q1, whatever we had projected actually has the numbers, net-net have been the same, just that the disbursement also has been higher as has been offset by an equivalent amount of higher rundowns as well. So we are still in line with what we had projected at 14% AUM growth, just that we will have to now consistently do a little more disbursements every quarter to see that we offset whatever is the higher prepayment or rundown that is there. So that we will be planning. As of now, we are projecting for INR 3,000 crores only, but we will be pushing for seeing that we cover for the higher rundown. So the projection for the entire year, we continue to have as 14% AUM growth is what we will be targeting. And Next, we talk about the spread and the NIM. So we had in the end of last quarter, of last year -- I mean Q4 of last year, we had indicated that there was a high amount of portfolio, which has moved from annual recent to quarterly reset and have benefited from the reduction in rate of interest plus there was a January 2026 rate at also of 15 basis points. So net of that, our yield would come down to 9.81%, which, in fact, we have been able to sustain throughout the quarter. And for the full quarter, also, yield is 9.81%. So this is something which was already envisaged and was already highlighted in the previous quarter earnings call. As against that, we had indicated that our cost of borrowing would be 6.99%, which in fact has ended at 6.98%. So basically, on the cost of borrowing side, we have further been able to bring down from what we were at as of 1st April. And this is mainly because we also had some high-cost NCDs which have been repaid. And we also were able to time our commercial run rate at a very appropriate time. So this has helped been ensuring that our cost remains low. We do have a couple of term loans, which we have or other one term loan, which we have raised at 7.25% during the quarter. But none of the older borrowings have had any rate revision because there is no revisions. And all our term loans are either linked to T-bill or are linked to repo. There is nothing which is in MCLR. So we have not seen any increase in that. So our spread is [ 2.83 as its 2.81 ] as we had indicated in the beginning of the year. And consequently, our NIM is 3.81, which also is -- we have given our guidance for 3.75. Going forward, we have a good amount of sanctions on hand from banks. And of course, NCDs and CPs are also there. But I think the banks are currently the cheapest option we are having, of course, other than the short-term reps. And we've also got an application with NAV. So at least as of now, even considering that NHB, we don't consider in Q2, we don't raise any NCD, based on the bank borrowings also, there will be a very, very marginal increase only in cost of borrowing, and that also because of the incremental loans not on the existing loans. So keeping that in mind, we are confident we will able to maintain the spread and the NIM because on the yield side also, we have a couple of opportunities available by -- because of our change in mix, product mix and segment mix. So we are confident that the NIM will be maintained at 3.8% plus, and we should not have a problem in that. As regards delinquency, and NPA, the Stage 2 and Stage 3 and delinquency has actually come down compared to March '26 in absolute value. So while there is a little increase of about close to INR 17 crores, INR 18 crores in NPA, it is more than that compensated in the reduction in our SMA 2 and SMA 1. And consequently, our provision of credit cost is marginal. It is much less than what it was in last year. And we are confident, in fact, the trends also indicate that our the last 6 quarters continuously our [indiscernible] bonds ratios have been coming down. And even right now, we don't see any increase in the number of delinquent accounts. So basically, we are confident that we should be able to maintain our credit cost guidance of 10 basis points. So that's in a nutshell the brief highlights of the performance. There are any queries, we can now I open it up for queries. Thank you.

[Operator Instructions] So first question is from Shreepal Doshi.

My first question, sir, was on the macros, which have been tough and still remain uncertain, while our asset quality indicators have remained resilient. But how do you see that playing out in the next 3, 6 months now, given -- and have you taken any underwriting norms or process changes in the last 2, 3 months? And also in terms of customer profile, any filtration or any dose and ones that we have tweaked there. And any particular trend in terms of salaried, self-employed segment in terms of rejection rates and then aspects on the same. So how do you see the same, let's say, the asset quality trends shaping up in the next 3, 6 months overall and keeping in mind the points that I've highlighted.

Sure. So thank you, Shreepal. First is in terms of macros, I think, as I indicated, across geographies, we are at least not seeing any slowdown in the demand and we are not seeing any major issues either in the project launches also. In fact, in this quarter, that is Q1, we have added another 60 APS projects also. So the projects are also there. We are also envision from 271 approved projects, we now have 331 approved projects as at the end of the quarter. So we don't see any major thing on the demand side. On the interest rate side, of course, and liquidity side, liquidity also, as I mentioned, we are having a good response. Banks are -- almost all our partner banks have come forward and have shown a willingness to sanction. In fact, we've got a couple of large sanctions also. So we don't see any problem in the liquidity either. In terms of the rate of interest, yes, the rates have slightly gone up as against 6.95%, which we were raising in in last year came from the banks. We are now -- the spread, they have increased. And while they can't increase on the existing loans, it's only for the new loans where the banks have been quoting anywhere between 7.25% to 7.5%. So that is only -- that is one change. So now on -- so what we have done is in terms of -- to offset this increase in the incremental borrowing cost, we have also tweaked some of our internal guidelines also. So like now whatever special rates that we are offering, which we are offering for more than INR 20 lakhs, we have increased it to more than INR 25 lakhs. So that is one thing, which was slightly another 20 to 25 bucket, we will slightly get a little better yield. We've also -- in terms of customers rerating basically every year, we have to do a customer appraisal once again and classify the customer's risk profile. So there also, we have relooked at it. One is we have added additional parameters so that we are doing a little more EWS signals have been added. A little more monitoring in terms of OTMS reports and all those things have been added. So that we are -- if anything is there, we get an early warning and we are able to take corrective action. And as I said, INR 20 lakhs to INR 25 lakhs have increased. And now we have also in terms of civil score, as against about 75 to odd percentage. Today, we are 82% of our loans are now having a civil score of more than 700. So I think it's more of customer selection also, which is slightly improved, that is coming for the customers at this point of view. So consequently, there will be some indirect increase in the rejection ratios. But as we know 80% of our customers are going through the DSA channel, so the log-in and everything happens only when it is basically cleared or fitting into our norm. So we don't have a very great data, this thing that we can share about how -- whether the reduction rates have gone up. But basically, these are the things that we have done in terms of this. And as I mentioned, for the last 6 quarters, we have been monitoring. We have our NACH bounce rates have actually come down. And we have also, during the last couple of quarters, run some exercises to see that older cases where NACH was not there, we have tried to convert those cases also into NACH. So these are basically some more of hygiene improvement that we have tried to do. This is what we have done.

Got it, sir. My second question was on the IT side. So in the quarter, we were supposed to do a complete implementation on the LOS/LMS and report generation. And I think we've completed the pilot already. So when do we complete implementation. And if it is in 2Q or in 3Q, would -- do you see any impact on the business or on the disbursement targets that we have highlighted?

Sure. See, we have done a pilot of 5 branches. And of course, there have been some teething problems, but nothing which has impacted our business. All these -- actually, we implemented all of them on 8th of July. Today, it is just 12 days. But all the 5 branches have put through all transactions, including sanctions, disbursements, customer creation, at processing, collection of the EMI collection through BPA transactions, loan closures, all these transactions have been put through. And we -- I mean, while there have been some small issues, which have come up and have been immediately attended to, but I mean, we have not had any kind of a problem touch-wood where we have had to kind of -- where we feel that it will impact our business. So -- we plan to, in fact, implement it across our remaining 245 branches in this current quarter only. The only thing is we don't have a weekly upgradation or a weekly implementation process possible. It has to be only at one end because only then we can take the data and compare it and be able to go ahead. So we have done it on -- based on the 30th June data on 8th of July. Senior will be doing it on -- based on the 31st July data in August and August data in September. And so definitely before the next quarter's earnings call, we will be done with all the 250 branches. And going by the experience of the 5 branches, I think we don't envisage any problems or any issues in the business because these branches also are likely to end the month of July with almost the same or better business than June. So we don't -- because already they are all logging files, the disbursements are happening all integrations with all other applications, including internal as well as external APIs, all of them have been functioning quite well. So we don't envisage any problems.

The next question is from Sonal Minhas.

Sir, just a few questions from my side. In terms of the right implementation, what was the experience in coming back to normal business volume for the 5 branches that we implemented in June, we already back to normal business volume or productivity in those branches so that we get to understand that we implemented in the residual number of branches, what will be the business impact and for what length of time?

See, the IT implementer, I just mentioned, it is based on the June data we've implemented in July. We are almost 12 days since we implemented. We are already kind of I would say, on track in terms of the business for the month. All the branches I have -- we have been talking to them. There are small, small issues but nothing major, which is a showstopper. All the processes, as I mentioned, disbursement, sanction, closures, repayment, NACH, everything has been processed, and we are very much on track to -- I think in this month itself, they will probably be on track for the business. Already, disbursements have also started in all the 5 branches. So there is no problem in terms of that. So going by that experience, I think we are confident we'll not have major issues. The only thing is we had 5 branches. We could give individual attention to when we do the next 50 or 100 in the next month, we may not -- it will take a little longer to the handholding. But beyond that, we don't see any problem because the system per -- system-wise in terms of the product that has been delivered and processing that is happening, there is no issue. And in fact, even the people they have been 3 to 4 days is all that they are taking to get the hang of the system.

Sir, are we targeting a certain number of business in this quarter since it's going to be a very testing quarter from our bandwidth point of view. I mean, so if we did a certain run rate say in June, would we be able to maintain that in July, August, summer despite this implementation? And can you share the number?

No, I think we are confident that [ INR 3,000 crores ] we don't want to change. We are -- I think we will be able to meet that number. However, we do plan to come back somewhere in September and maybe either we will issue a press release or we will maybe come back and have a conference like this. But we can update -- we'll give a proper update on how the remaining 2 tranches of implementation have happened in August and September also, but we are confident the way 5 branches have been able to quickly within 10 days, come back to normal and do all the processes. I think in other branches also, we should be able to do it in the same month. And -- so INR 3,000 crores that we are targeting for Q2 stays, that number stays.

One last thing on pricing. When I look at the shift in the ticket size mix, to more than INR 30 lakh loans, the proportion is going up in disbursement and INR 50 to INR 100 lakh category ticket sciences loans have also gone up in UN. So if they're contributing higher to our growth with every passing quarter, what is the pricing here versus the overall pricing that we get in the quarter?

So actually, there's a multiple combination is, I would say, a 2x2 or 3 x 3 or whatever kind of metric with some -- So as I said, blended cost is 9.81%. And last year also, we had 9.82% there. And so by and large, overall blended cost is coming to 9.8%. For a salaried customer, who is having a CIBIL score of more than 725 and who is probably looking for a loan of INR 25 lakh plus because we have moved it from [ 20 to 25 ] I think the best rate would be around 8.4%, but then it goes up to around 11% also depending on the customer profile. So if it is individual customer rating is or S2 or S3, then obviously, the rate will be higher. Same way, the customer is vis-a-vis stadias a self-input then it will be a little higher. Against the housing, if it is a little -- so the highest rate would be for non-salaried, non-housing customer who is having an S3 rating. That would be probably the highest rating. So anywhere between 8.4% to around 2.5% would be the range when blended comes to 9.8%.

The next question is from Shubhranshu Mishra.

Two or three questions. The first one is a couple of NBFCs who have reported before you have spoken about some amount of disruptions in the IT sector, hiring, especially at the entry-level management level. Given the fact that we have a larger exposure to Bangalore and the outcome of Bangalore. Are we seeing any kind of changes in the offtake, especially in the IT sector for home loans? If so, have we changed any policies around it? Second is, can we spell out the number of home loans and the number of LAP loans that non-home loans that we have done in this particular quarter? And what's the expected run rate for the quarterly run rate for the rest of the year? And the third question is around any kind of surprises that we might expect in OPEX going forward in '27?

Sure. See, in terms of the IT sector impact on the loans enabling, we have not seen any major maybe Karnataka, as we said, it still is also growing at 18%, and Telengana has grown at a little higher than that only. Of course, to some extent, it is also because of base effect. But having said that, it is still growing compared to last year, and it is also contributing. We are not seeing any major change because of this IT. In fact, we -- there are job losses. That's a fact. But there are also people who are in the mid and all who are able to reset them new, they are also able to get different jobs in different things. So there are -- it's not that there are more jobs and people are absolutely having to sit at home. So far, there has been no impact. Having said that, if you look at our Karnataka delinquency, our NPA as on 31st March '26 was lower than in absolute value as compared to [indiscernible] and in June also, it's a very, very marginal 1 or 2, 3 cases, but nothing major, which is there, which also is anyway first quarter sequential impact. So we have not seen any major impact of that. Second, in terms of number of loans, I don't -- wouldn't be able to give you the number of loan accounts, but I can definitely share the number, the amount. So as in out of INR 215 crores which we have done in Q1 FY '26, [ 12.91 ] was Home HL. [ 724 ] was NHL. As against that, Q1 FY '27, you have done INR 2,609 crores, of which INR 1,650 crores is HL and INR 958 crores is NHL. So basically, in HL, we have had a 28% growth Q1 to Q1. And in NHL, we have had a 32% growth. This is in terms of the amount I can say, number of accounts I don't have right now.

The third question was around OpEx. And if I can just squeeze in one question, which is around the APF. So the total number of APF you have spelled out is around 331, per project, what is the maximum number of apartments that we can do? And when does this become a major contributor, when I say major upwards of at least 15% in our disbursement number?

I think, see, in terms of OpEx, I don't think there is any major surprise other than what we have been saying that INR 40 crores is yet to happen. As I said, since we have just implemented in Q1 -- in July of this year, we still have some of the things where sign-off is -- we have to still capitalize some of the things we'll capitalize in this in July also. So that will come into by way of depreciation and all those things. But Panda, I think quite a few of the items, which are there where the AMCs have also kicked in, some of the cases where payments and all have been made, which are -- so those things have already started. I think even this quarter, there is a little bit of impact. In fact, if you recollect, last year also about INR 5 crores to INR 6 crores of expenses have already kicked in terms of the project because some of the project items which we had taken in the last quarter of last year, 1 year -- first year, AMC has also started. So basically, in terms of OpEx, I don't think major any major new things are going to come. Salary cost or rent and taxes and all those, everything else other than IT cost is also well under control. There is no major surprise there. Everything is in line with last year's thing only. In terms of APF actually, we are looking at as such about up to 100, 150 units per project also we can consider for APS. So we do have some good marquee projects also, which have been approved by us of some very [indiscernible] also. Although most of the projects are of Cat B builders, but we do have some good market projects of Cat A builders also. As of now, in fact, the contribution is more of a -- they are also testing us. We are also going through whole things. So learning is happening. So it's a very small number. I think 15%, I think, would still take -- will be a while away. But at least we have started getting a good regular trickle from these projects, which is a -- which is a positive thing.

So this 100 number is what percentage of the total apartment throughput?

No, no. This is a total number of parents in the project. What we are expecting is to start with maybe 1, 2 because we will see all the projects that we have tied up with mostly are already having 2 or 3 tires. And no builder goes with a single tie-up. And since we are not doing developer finance, obviously, the first right of refusal goes to the lender who has also given the project finance.

So what I'm trying to get at, Suresh, is from a risk management perspective, what is the maximum number of apartments we can do per project?

That actually, we have a dual thing. We have a 10% and there is a number wise also that it is project with units, then you can go up to think 4 to 5 or 6 or something. So we have a metric for that also. So we don't go by the -- from the risk point of view, we will never go with more than 10% in a single project. I misunderstood your question, sorry.

Then the next question is from Abhijit Tibrewal.

Sir, just two things. One is, I mean, we have been the fact that we are going for a higher ticket size now where we are seeing that large part of the growth coming from higher ticket sizes. I think I also heard you on the call that given that the incremental cost of borrowings are moving up, we are also trying to do some mix on the asset side. Basically, where you said that maybe the yields that we used to charge to up to INR 20 lakhs, the same yield we will charge to INR 25 lakhs now. I hope that understanding was correct.

Correct. That is correct.

Don't you think that as we keep moving up, sir, we are facing higher composition. Basically, what I'm trying to understand is, so until now, the competition always used to be with banks or PSU banks. Now a lot of these large HFCs also talk about doing -- I don't want to call it affordable, but small ticket housing the [ 25, 30, 35 ] where we are building our suites for. So are we seeing higher competition on some banks there I come from these largest [indiscernible] there?

See, actually, in fact, it is not the banks who are the prime players who take away our portfolio. Our main BT happens with LIC and Bajaj only. It's always been the private center and players who are doing it in the [indiscernible] larger HFC space. The banks, of course, are there, but so far, we are not still not in threat size segment, we are directly in competing them. So it's -- if I ask 50 branches, probably 30 branches would say, LIC is the main competitor, maybe another 10, 12, we'll say, Bajaj and an competitor and maybe a few of them will say DNB 1 or 2 in smaller geographies or so rarely, you will have the #1 competition or the #1 entity as a bank. So we don't have that. But so far, at least these other players that have not majorly been able to do a dent, make a dent in our listing. And as I also mentioned, our prepayment or loan BT out has been most stable in Q1 compared to Q4 of last year. So Q4 last year, we had INR 400 crores of BT out. This time, it is INR 408 crores.

Got it. And sir, then you remember you touched upon this when someone asked you if you're seeing any higher bounce rates, higher delinquencies from salaried customers in the IT sector, given that we have a very good presence in Bangalore and Southern India, Talangana. So sir, just trying to understand, have you had a chance to look at what proportion of our salary customers are employed in the IT sector. That is one part of the question. And the other party is that if these are our customers, what ticket sizes, what is there basically annual income like? But what I'm trying to understand is what kind of IT customers will typically end up going to banks and what kind of IT salaried customers will come to us.

Sure. See, our IT sector exposure is only about 6% in terms of the number of customers who are associated with the IT sector and have taken a loan from us, okay? And we have done so study at least the top companies, which are in IT are definitely not the customers from those companies are not likely to say whether an Infosys customer, whether [indiscernible] customer, whether Cognizant customer or somebody is taking a loan from us, it's almost not there. okay? We have small, small IT-related entities with whom we are there. Obviously, yes, there are those entities also have to have -- we'll be the first ones facing the challenge whenever competition comes or whenever any new change happens. But still so far, we have not seen any major impact on this. At least our check bounce ratio, as I mentioned, for the last 6 quarters have actually our NACH bounce ratios have been coming down. So we have not seen any major impact because of this, yes.

Got it. And sir, just the last year in the clarification to what you said earlier. What you're saying is that this year, you're still targeting that INR 13,000 crores in this business. Does that -- given that what you explained the EMIs we may say the [indiscernible] for the principal amortization is faster. So to that end, this year, you're expecting the rundown in the book to be higher but still targeting that 14% growth that is [indiscernible]?

So if required, we may have to push business, I think we should be able to do that. And already in Q1, we've overshot our -- whatever we had targeted for also, Q2 also we are targeting INR 3,000 crores. And I think the way our IT transformation has gone, we may not have -- we may be able to push a little earlier than what we had anticipated. So I think we will still -- we will be able to do a INR 6,000 crore accretion to the book by the end of the year. If that means we'll have to push a little more in terms of disbursement, INR 13,000 crores will become INR 13,200 crores INR 3,400 crores or whatever. We will try to push for that.