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

Good afternoon, everybody. Welcome to the Can Fin Homes Q2 FY '27 earnings call. I would like to hand over the call to my colleague [ Nidhesh Jain ].

Thank you, Ram. This --

I'm sorry, [indiscernible]. I'm butting in between before I say that, kindly note that this call is being recorded. And I would request you to raise your hands if you have any questions. Over to you, Nidhesh. Thank you.

Thank you, [ Rania]. Good afternoon, everyone. Welcome to quarter 2 FY '27 Earnings Conference Call of Can Fin Homes Limited, hosted by Investor Capital. [Operator Instructions]. We will start the 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; 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. Iyer for his opening comments. Over to you, sir.

Thank you, [ Nidesh], and good afternoon, everyone, and thank you for joining the earnings call for the second quarter results of Can Fin Homes. Before we get into the question, we have a small brief on the highlights of the quarter, which I will just share and then we can go into the question and answers. The highlight of the quarter for Can Fin, obviously, has been that the entire project pages, which is the IT transformation project has gone fully live. In fact, we went in phases where July we went ahead with 11 branches, 5 old branches and 6 new branches, thereafter in the month of August, additional 75 old branches and 14 new branches were added and in the month of September, 77, old branches again were added. And finally, in the first -- from effective 1st of October, 93 of the remaining old branches and the 5 branches, which have subsequently opened new branches have all gone live. So presently, we are completely online in the new system. All the aspects of the project, including the security aspects, the infrastructure aspects, which are already implemented earlier. And now all the operational or the functionalities, which are there in the project have all been implemented, and we have gone live with the entire [ LOS LMs ] across all the branches. Of course, this implementation has had an impact in terms of our disbursement, particularly in each of the branches in the month where the business has -- or the IT implementation has taken place. To this effect, we have actually given an additional slide in the presentation, that is Slide #20, as to the impact that we have had because of this IT implementation. So the month in which the implementation has happened, the disbursements they have dropped in that particular branches by about 70% to 75% and then the next month, again, it pushes back and it comes back to almost 80%, 90% of the old disbursement. So that's the kind of thing. So as a result of this, in the months, particularly of August and September, where we had a large chunk of 75 and 77 old branches going live. There has been a major impact. And as a result, the disbursements for the quarter were at only INR 2,375 crores. This, of course, is net of the INR 29 crores, which we have reduced from the disbursements because of the NHP guideline, which has come saying that regarding the cancellation of [ DDS ]. So during the quarter, we have had about INR 28 crores of cancellations of disbursements, which were earlier handed over to customers for various reasons. And that has been netted off plus also about INR 19 lakhs, which is in respect of the cancellations from the date of the closure of the quarter to the date of the announcement of the results. So basically, combined put both these things put together, it's about INR 29 crores, which has also been netted off from this INR 2,375 crores. So that is the impact. In terms of the state-wise or region-wise disbursement, the demand has been almost -- has been quite strong. There has been no change in the demand. We observed that. In fact, on Page 20 of the presentation, you will also see that particularly the branches where no impact or no -- the IT transformation has happened in the month of October, there you will see that in the month of July, August and September, the business has been robust. There has been an increase only as against an average of INR 435 crores, which these 93 branches we're doing in Q1. In the month of September also, they have done INR 481. So INR 458 crores, INR 424 crores and INR 481 crores. So basically, in terms of the demand or in terms of the business per se, there has been no change. But for the impact of the IT transformation, which is mainly on account of the understanding or rather the change in the flow the additional processes that have been incorporated. So now, in fact, there are some 4 OTPs -- 4 to 5 OTPs depending on the customer and the type, which we have to take from the borrower as well as the co-borrower separately. So that comes to over an 8 to 10 OTPs additionally. So that is -- to those kind of process changes which have been implemented have resulted in some time lag and things like that, plus in every month since it was a migration from legacy system, the migration data had to go through a couple of processes. So every month, we basically were able to hand over to the branches only after post fit that 5 days of gap also. So basically, these are onetime issues, which have impacted. But as can be seen from the 93 branches data, the demand there is no issue. We are still seeing a robust demand across all the geographies. Karnataka also, which has been in the past always a point of observation has stabilized around INR 30 crores to INR 250 crores of disbursement consistently. And only other change during the quarter has been that in the state of Telangana, there has been a new Section 22 or something to some section which we have been wherein at the time of some areas have been identified by the subregister offices or by the government to have been like modified for this, which is only available with the [indiscernible] offices. So before execution of any document, everything has to be taken to the [indiscernible] office, and they will confirm whether this can be registered or cannot be registered. So while we -- and this process before the entire process of processing, we had a lot of cases where finally, when it went for the documentation or registration, the process was stopped because there is some study or as per Section 22, the legality of those properties is being verified again. So this has slightly impacted. But having said that, now we have changed the process whereby now before we entertain any log in or spend time in processing the entire case, we ask the customer only to get the item verified from the [ sub register ] office and then [indiscernible] it otherwise. A lot of cases where it came all the effort up to the stage of documentation was done and we had to cancel the disbursement. So basically, that process has been changed down to adjust to this new change of Section 22. So as a result of this, only a 1 quarter impact, which is there in terms of disbursement. For the full year, we continue to have the same guidance of INR 13,000 crores in terms of disbursement. To that effect, whatever corrections, whatever strengthening we have had to do, we are already initiated in October itself across all the branches so that we can push disbursements in Q3 and Q4. And another thing is that now with the entire -- all branches having gone on the new system, we should now be able to pull out the people from the teams for sales also because we were about 84 people in the month of March in the sales department. Even now as we speak, it's about 90. But all the people will now get and so we'll be able to strengthen the sales team. You will see in one of the slides also that the sales team with the same set of staff has also done INR 560 crores of disbursements have come from the sales team of about 98 people, so about average 90 people. So in terms of the -- that comparison last year was for the full year, the sales team has contributed INR 868 crores -- so basically, even without much of an addition in the team, the contribution has increased from the sales team. And now with additional staff that will be moving from the business to the sales division, we will be able to push further in terms of the sales team disbursements, and that should also support us in the Q3 and Q4. Same also in the sense that we have 28 branches which are planned for the full year. As against that, 25 branches have already been started and they are operational with stopping also in place. So therefore, the contribution of these 25 branches will also come in Q3, Q4, which will support in our disbursement push. So we hold the guidance of INR 13,000 crores for disbursement and will push in Q3 and Q4 to cover up. The second thing is in terms of prepayment, you would see that in absolute value last quarter, we had a slight increase, and we had indicated that we are taking certain steps in terms of converting some regular excess payment customers to deposits or some alerts and all those things. Some impacts we are starting to see in terms of the prepayments. July was a little higher at INR 655 crores. But then the next 2 months, it has dropped to below INR 600 crores per month. And for the full quarter, it has been much lower at INR 1,795 as compared to INR 1,857 in Q1 of this year. So there has been an improvement in the prepayments plus now with the rate hike, which has been there, the gap between the -- what the market is offering and what we are offering will come down because 7, there was a 25 basis points increase in the report whereas we have only increased 10 basis points for our housing customers, old as well as new customers. So basically, the gap will now start reducing, which will also help us in retaining good customers. So this is in terms of the prepayment. The AUM consequently has been impacted because of a lower disbursement and has been there. But with the full year guidance continuing at INR 13,000 crores, we pulled the same guidance for AUM of 13%, 14%, closer to 14% in terms of our AUM growth for the year. During the quarter, we received in terms of borrowing side, we received a sanction from [ NHB ] for INR 1,350 crores. And you would also have heard our news articles about [ NSB ] planning to increase the refinance as well as increase the proportion of refinance under the AHF component. So this should help us positively and the INR 1,350 crores plus whatever if an enhanced sanction can come, we will be drawing during the year. Last year, as a strategy, we had planned to draw the entire funds only in Q4 when normally the liquidity pressures are there and the rate is slightly elevated. But if the sanctions are on the higher side, we will probably start drawing this year from the Q3 itself so that we can enjoy the lower rate also. In terms of the undrawn sanctions, we are having close to INR 2,500 crores of undrawn sanctions which are also there to support the business. And in terms of the rate hike, as I mentioned, we've already passed on effective 8th of October, 10 basis points for our housing customers. So basically, endeavor will be to ensure that our NIM and spread and NIM stays protected. Our guidance is of 2.75% and 3.75% for spread and NIM whereas we have been operating around 2.8% and 3.8%. So we will continue to protect our spread and NIM, and we are confident during the year, we should be able to maintain that because net impact of the rate hike would be that on a 65% of our liability side, we are impacted by this report rate as well or by the trail rate. So to that effect, it will be on the entire book, it will be about 12 to 13 basis points increase, which will be there as against which we have already increased 10 basis points. As you know, last year also when the rates were coming down, we did it in 4 parts of 10 basis points, 15 basis points, 15 basis points and 10 basis points. So same way, the next time, maybe we may at 15 so that we can average out to about 12 to 13 basis points. So indirectly, the -- what I'm trying to say is that the NIM and spread, we will continue to maintain at 2.75, 3.75 plus, and that will be things. In terms of delinquency, our overall delinquency has not been impacted much. Only there is a little bit of an increase in the [ SMA Zero], which also is mainly because of the methodology of computation or flagging of these cases. So basically, had an old system, which was completing the overdues or outstanding up to the end of the month, whereas it is on a daily basis. So if there are customers many times for very, very small amounts, what was stored the customer 5 days back, the customer pays today, but the 5 days interest is becoming a lag. So we are slightly changing the process and all those things to see that we can communicate to the customer that if you pay today this much, if you pay the third end of the month, there's much payment. So delinquency is not much of a concern. Overall, our credit costs, we have guided for 10 basis points. And for the quarter -- end of the quarter, it was about 9 basis points. And I think we can continue with a guidance of 10 basis points. Generally, also, you will see that in edge to the -- there's a reduction in our gross NPA. So that should also help. In fact, it should reduce the NPA from the current levels. That will also help in the provisioning. Plus if you see, in fact, the current year, the first half is always where the NPS goes up and then it starts coming down. So last year, our increase in NPA in the first half was about INR 40 crores as against this in the current year, the 6 months, it has been INR 35 crores. Again, the pushback will come in the second half, so then we'll be under a more comfortable position. The last thing is about the regulatory guidelines. So first, as I mentioned, there was NHB regulation or a guideline regarding this -- the reporting of disbursements as netting off the cancellations during the quarter and the cancellations of the -- which have been from the date of the end of the quarter to the date of reporting. So that we have already implemented in this quarter, and we have netted off crores from our disbursements, which other ways where the customers have been handed over the disbursements. The second change is regarding the wage bill where we have not had a problem in either of the 2 cases where all our staff, we are having salary more than 25,000. So our -- even the joining entry-level salaries start from about 36,000. So basically, that is not impacting. And second thing is, again, [indiscernible] last quarter also, we had indicated our [ Bass DA ] is more than 50% of the total package. So that is also no impact on the company. The third is more of a prospective or a likely impact, which is because of the insurance discussion paper or where the insurance commissions have come down, proposed to be brought down drastically. There also, in fact, the entire year last year, our commission from insurance business was only to the tune of about INR 120-odd crores, which is less than 1% of our PBT of INR 1304 crores of last year. So basically, the -- even if it is implemented in the way it has been shared or published in the media, it will not have any meaningful impact in terms of our profitability or anything because the contribution of the insurance income is premium income is very, very low for us. So basically, these are the highlights of the quarter. We can open up for question and answer. And once again, thank you for joining this call. Back to you, Nitesh.

We open up for the Q&A session. [Operator Instructions] So we're taking the first question from [indiscernible]. [indiscernible], Please go ahead with your question.

So my first question was our liquidity coverage ratio has gone like up for some -- like 100%. So when the regulatory requirement is only 100%, is there a reason behind it?

Yes. So [ Nippon], basically, there is no -- the only thing is it is a matter of computation or to just compute for the next 3 months or 1 month actually and see what is the kind of liabilities which are falling due. So you would see that by and large, we have increased our long-term borrowings and therefore, the short-term borrowings basically which normally come up again and again and for which we have to provide -- or maintain the [ HQLA], that figure has come down. So just to give you a small number, probably around 23 from the time of March 23, we had almost about 26%, 27% of our total borrowing side was short-term borrowing, which now has come down to 12%. You can imagine, this is basically the CPs we have brought down. We have brought down the short-term borrowings from the banks and everything. So basically, that is impacted and also the fact that now what we, as a strategy, do is instead of taking bulk borrowings of INR 1,000 crores or INR 500 or INR 2,000 crores, which will come for a repayment and one single shot we are taking in smaller proportion. So basically, the lower in terms of providing the liquidity in any period of 30 days is kind of reduced. So this helps us in managing our borrowings and basically maintaining our LCR.

Okay. Okay. So what should be the steady rate of this ratio?

See, basically, it's a continuous flow of thing that we have to maintain. So if there are more short-term orders or any kind of borrowings where it falls during the next 30 days, we have to provide the [indiscernible]. Normally, we have a standard amount of approximately INR 2,300 crores or something that we are maintaining as our [ HQLA]. So therefore, what happens if this figure keeps changing, this ratio also slightly keeps changing. But what we are maintaining HQLA will always be above 100%. Now if in the next 30 days, if it is not there, and we have been -- we have more liabilities falling due or interest payments or regulatory repayments [ sporting ] due in the -- after 30 days, then it will not [indiscernible] so the LCR will reflect high. But our HQLA that we are maintaining is almost steady and it is enough to maintain at any given point in time as per the current requirement, more than 100% LCR.

Got it. Good. And sir, what kind of stress tests have we done on our loan book?

See, we have almost 12 to 1 order scenarios that we are doing in terms of how much of a flow will happen in terms of our delinquency, how much will happen. We are also doing in terms of the rate of interest impact. We are also doing in terms of delinquency. Both these kind of tests we are doing for trust stress testing. So we also see how much it will have an impact. So all these tests we are doing as per our RMCBs also we are presenting it to the RCMB.

Okay. And what is the frequency of this?

We are doing it every quarter.

So we will take the next question from [indiscernible].

One on this interest rate cycle, so 2 things. One, as you rightly mentioned that our ALM is such that most likely will not have any material impact on NIM. But any sense on, let us say, does this interest rate hiking rate cycle will have any impact on the demand side? I mean as per your let's say, assessment historically, whenever we have -- we are going to a rising rate cycle, does that impact demand for home loan or it's a nonevent?

See, I would say 25%, 0.5% is kind of a nonevent. The rate of -- the rates that we are seeing, I think only once in the past, we have seen a rate which is lower than the [indiscernible] when it had to 6.75%. Otherwise, 7.15%, 7.5%, 8%. These are among the lowest that we have seen. So 0.5% increase from here is not going to make much of an impact in terms of the demand because once it is converted into a 15-year EMI, the impact on the EMI is very, very limited. So it is not going to affect the cash flow as much well percentage point increase or even 75 basis points increase in our testing in terms of the EMI is not a very large amount. Of course, it is -- there is an increase -- so either you can increase and start giving more of 25- and 30-year loans or you can -- so that the EMI remains the same? Or as you can -- even if a little increase in the EMI does not too much to retail demand.

Got it. So basically, you don't see any change in customer behavior just because of rising [ cycles]?

Not much. This should not -- have not much.

Okay. Okay. And sir, second thing is on this the El Nino impact, right? I mean we are hearing that South is actually going through a very bad reseason. So what is your assessment? I mean, do you also foresee some impact because of this over the next maybe 6 to 12 months on demand or asset quality?

See, there is definitely an impact. So just to answer your previous -- 1 more point in your previous question. So as I mentioned, the 25 basis points increase in the rate. For our loans, it's only about 10 basis points. As I mentioned, that we -- when the rates are coming down, we also reduced 50 basis points for our 125 basis points cut. So consequently, when the same reverse cycle happens, we will also not pass on the impact. So for us, 50 basis points might work out over 22, 23 basis points increase from our loans, that is a [ customer ] that we offer. So that is just a clarification. And yes, coming back to you this -- so yes, there is -- so if there is a water shortage, of course, it can impact in terms of the construction activity. But we'll have to see how much -- because sometimes there have been delayed range. And at least Maharashtra, Karnataka and some of the states, yes, there has been definitely a lot of drought prone, the [indiscernible] drought has been announced in quite a few villages and stuff like that. Of course, in our case, we don't have too much of a deeper penetration in [indiscernible] to the Tier 3 to Tier 4, Tier 5 and all. We mostly reside [indiscernible] Tier 1 and Tier 2 where at least there is water is available, of course, but still, it will have an impact in the overall of things. It will have an impact where construction may slow down a little bit. So it's still a little early for it. It's a little early. If at all it happens, of course, it will be impacting everybody. But yes, it is something which can impact a little bit.

Got it. So just a follow-up on that. I mean, so then in that case, do you foresee any risk to our assessment target for '27?

See, if the overall industry is going to slow down, I think we are part of the industry. We cannot be very different, and I don't think we will then be [indiscernible]. But as of now, as I said, it's a little early to start projecting that. But as of now, I mean, there are a lot of construction. There are other ways also, like we maybe look at a little more of [ LAP ] or we may look at some construction, some top out for a short period and all. These are all things which as a short-term strategies, we will have to adopt.

[Operator Instructions] The next question we'll take up from the [indiscernible]. Yes, [indiscernible] you can unmute yourself and go ahead with the question.

I think this [indiscernible] maybe we can go to the next in the queue.

We'll take the next question from Mr. [ Vijay Singur].

My question, we have done an IT transformation after a long period. So how the operational efficiencies are expected to play out in FY '27 and FY '28?

Sure. See, as I was mentioning, once there's a lot of process change, but a lot of things in the -- in terms of the efficiency in the sense that we have a lot of processes, which are [indiscernible] manual have been converted into automated processes. So that is in terms of the process change. There are a lot of opportunities because all the OEMs are -- all the applications that we have taken are having AI native AI capabilities also, and we are also looking at some things, some more features which can be added. So auto form filling, things like that are definitely going to improve. This is going to open up a complete channel of digital sourcing for us because earlier the -- it was purely a manual driven process and all those things now. In fact, a lot of customer journeys in terms of digital journeys can also be incorporated. And so those are things which will start now and we'll start to see some benefits. If you see one of our sourcing, we have a 10% business. We are expecting to come a digital source. So that will be an enhancement to our business. Then in terms of efficiency, as the processes are there, a lot of activities which are manual are doing this, we will be able to pull out people from our teams for sales and on field activities. So that is also a thing. In terms of a lot of other internal processes, there are auto form filling, auto verifications, validations, which are happening. In terms of the compliance, also, there are -- there's going to be a lot of improvements. So this year, if you see, we have actually looking at an increase from 90 or 85 people in the sales department to take it up to 150. And all this is without increasing the basic structure of the staffing at the branches that we are looking. So it's not that we are adding another 75 people or something in the sales department. What we are doing is from the existing teams, we'll be able to remove the people and put them on the field because the efficiency will start to come in. So at least in this year and part of next year, we will definitely see some improvement or some benefit in terms of more people on the field because of efficiencies coming in.

One small follow-up question here. What is the process has been completed in -- throughout -- for the entire organization? Or is it pending or do something like that?

No, this has entirely been implemented. So if you see our presentation, we have various activities which have been put Page #19 of this presentation. Slide #19, you will see that all those things have already been fully being implemented. In fact, this implementation started from as early as prior to September 2025 where first, the infrastructure parts component started getting delivered, the security, the -- [indiscernible] knocking on started getting implemented. And then in a phased manner, some in -- by September, the risk and ALM and borrowings module were implemented January, we had the deposits, the DMS, all those things. So basically, the entire package with all the components, which were part of the RFP, which we had released in '24 and that have all been implemented.

It's good work. One more question is there. That's related to it's a rising interest rate scenario and what is our expectation of prepayment rates? Definitely, it's going to come down, if 100 bps repo move up.

So as I said, we would not pass on the full increase to the customers because for us, our 65% of our liability side is linked to floating rate, 65 order percentage. So whatever is the impact which we will see. So 25 basis points to roughly implement about 13, 14, 15 points, basis points for us. And some we will pass on right now 10 basis points to our customers is what we are passing on for our housing customers. So basically, if you look at it in terms of the prepayment, what will happen is at the -- prior to the rates coming down before the cycle started, the gap was about 55 basis points in terms of the rates. Now that went up to -- by another 65, 75 points because 125 was reduced by the banks and those linked to the external benchmark, whereas we reduced by only 50 basis points for our existing and new customers. So this gap widened. Now what will happen is this gap is totally start shrinking. So say, for example, a 100 bps increase in the -- over the next, say, 1 year, if it happens, then the gap will reduce by around for us about 60 basis points. So that's basically a sizable amount of reduction because as I said, 50 to 75 basis points, I think the customers don't mind -- but if it is more than 1%, 1.5%, 1.25%, then the customers, then the impact in terms of the EMI will be larger. So obviously, this gap once it shrinks, start shrinking, the help -- it will help us in our prepayments. In the past, our prepayments have been in the range of about 15.5%, 16-odd percent, which has gone up to almost 17%, 17.5%. So 1%, 1.5% reduction in our prepayments or rundown will be almost coming down to about INR 400 crores.

Any outlook for FY '28? Sorry, I asked 3 questions. Any outlook for FY '28 in terms of a growth?

[indiscernible] next year, at least, we are internally looking at around INR 16,000 crores disbursement for FY '20. So that should translate to around 15%-plus AUM growth for next year because assuming that our 3 payments also goes up by, say, for example, from this to, say, INR 8,500 crores or whatever. Then also the addition to the book will be a little higher. So we expect that this should probably work around 15% plus closer to 15.5% or something.

[Operator Instructions] We'll take the next question from Mr. [indiscernible].

Sir, just 2 things. One is when you say 65% of your borrowings are floating. I'm assuming you're just talking about our bank borrowings here. which, if I remember in the past, we have moved almost all of it to report like borrowings. So as repo rates move up now, our bank borrowings will reprice approach. So sir, this happens on T+1 or it usually happens the following month following quarter? How does that work?

So bank borrowings, it increases in the next month. So this time it has happened on 7th of October. So basically from the 1st November, our rates under bank borrowings will go up. linked to the, of course, linked to the [ EBLR ] linked to report it. Now there are some which are linked to [ T-bills ] and all, which will happen at the reset quarter. Whatever is -- so we would have taken on most of them are at a quarterly reset. So at that time, the [ T-bill ] whenever there, it will be there. So not all the floating rate liabilities are on monthly reset.

Got it. And then, sir, I mean, NHB, which is almost 14%, 15% for us, that is also largely floating only, right, linked to [indiscernible]?

It is linked to NHB PLR, but Energy PLR also has not changed for some time. There was only one change which also last time is in spite of sustain, they did it at a very fag they did it. So by and large, that is also very delayed. It doesn't happen immediately. And of course, for NHB also, we have the AHS, which is fixed. It is not floating.

Right. Okay. And sir, in that case, I mean, for us to keep our spreads and margins stable, whatever increase we see in our liability side and like you mentioned, predominantly banks will have to be passed on to the customers. Otherwise, I mean, there is a risk of spread and margin compression in a rising rate cycle.

That is absolutely right. So basically, seventh was policy announcement. And on itself, we had our ARPU, and we have increased our rates for our existing and new customers on the housing side by 10 basis points. obviously, the impact would be resulted would be around 12, 13 basis points, but we have done 10 this time. Maybe next time, we will do 15% for equivalent 25 basis points increase because we are not doing this -- it's 5, 10 or 15 basis points.