Can Fin Homes Q2 FY26: Strong Profit Growth Amid Rising Interest Burden

The September 2025 quarter results underscore Can Fin Homes' ability to maintain profitability momentum despite a challenging operating environment characterised by rising funding costs and intense competition. The company's interest income grew 9.04% year-on-year to ₹1,049.45 crores, whilst net interest margin remained resilient at healthy levels. However, the sequential growth in interest income of just 2.85% from Q1 FY26 suggests moderating loan disbursement growth, a trend worth monitoring closely.

With promoter Canara Bank maintaining a steady 29.99% stake and institutional investors holding 39.31% of equity, Can Fin Homes continues to enjoy strong backing from sophisticated investors. The company's valuation at 12.10x trailing twelve-month earnings appears reasonable compared to housing finance peers, though the stock's negative one-year return of 6.41% reflects sector-wide headwinds that have pressured valuations across the board.

Financial Performance: Margin Resilience Amidst Cost Pressures

Can Fin Homes' Q2 FY26 financial performance demonstrates commendable resilience in profitability metrics despite the challenging interest rate environment. The company's profit after tax margin expanded to 23.96% from 21.97% in the year-ago quarter, a significant 199 basis points improvement that reflects effective cost management and operational efficiency. On a sequential basis, the PAT margin improved by 202 basis points from 21.94% in Q1 FY26, indicating sustained momentum in profitability enhancement initiatives.

The interest income trajectory reveals both opportunities and challenges. Whilst the 9.04% year-on-year growth to ₹1,049.45 crores demonstrates healthy loan book expansion, the growth rate has moderated from the double-digit levels witnessed in earlier quarters. The sequential growth of 2.85% from Q1 FY26 suggests that disbursement momentum may be tapering, potentially influenced by competitive intensity in the housing finance sector and borrower caution amid elevated property prices in key markets.

A critical concern emerges from the interest expense dynamics. Interest costs stood at ₹638.58 crores in Q2 FY26, representing a 3.75% year-on-year increase from ₹615.50 crores in Q2 FY25. More tellingly, on a sequential basis, interest expenses declined marginally by 1.50% from ₹648.31 crores in Q1 FY26, suggesting some relief from funding cost pressures. However, the interest coverage remains under scrutiny as the absolute interest burden continues to weigh on net interest margins.

The operating profit before depreciation, interest, and tax (PBDIT) margin excluding other income stood at an impressive 92.82% in Q2 FY26, up 13 basis points from 92.69% in the year-ago quarter. This exceptional operating efficiency, characteristic of housing finance companies with lean cost structures, provides Can Fin Homes with cushion to absorb funding cost volatility. Employee costs rose to ₹43.26 crores from ₹28.85 crores year-on-year, reflecting strategic investments in talent and branch expansion to capture market share.

Capital Efficiency: Strong ROE Signals Quality Fundamentals

Can Fin Homes' return on equity (ROE) of 17.39% in Q2 FY26 stands as a testament to the company's capital efficiency and ability to generate attractive returns for shareholders. This ROE level significantly exceeds the housing finance sector average and places Can Fin Homes amongst the better-performing players in terms of profitability per rupee of shareholder capital deployed. The five-year average ROE of 16.81% demonstrates consistency in capital deployment efficiency, a critical quality metric for financial services companies.

The company's balance sheet reveals a shareholder equity base of ₹5,067.49 crores as of March 2025, up from ₹4,343.85 crores a year earlier, representing a healthy 16.66% year-on-year growth. This equity expansion, funded primarily through retained earnings, provides Can Fin Homes with the capital cushion necessary to support loan book growth whilst maintaining regulatory capital adequacy requirements. The book value per share stands at ₹380.54, against which the current market price of ₹801.15 implies a price-to-book ratio of 2.11x.

The debt-to-equity ratio of 7.42x, whilst appearing elevated, is typical for housing finance companies that operate on leverage-intensive business models. The total debt of ₹34,864 crores funds a loan book that generates the interest income driving profitability. Net debt stands at ₹32,182 crores after accounting for cash and equivalents, indicating prudent liquidity management. The key for investors is to monitor asset quality and ensure that the leveraged balance sheet is backed by high-quality loan assets with minimal delinquency.

The Interest Cost Challenge: Margin Pressures Loom

Whilst Can Fin Homes has delivered strong profit growth, the interest expense trajectory warrants careful monitoring. Interest costs of ₹638.58 crores in Q2 FY26 represent 60.85% of interest income, up from 63.94% in Q1 FY26, indicating some improvement in net interest margin dynamics. However, on a year-on-year basis, the interest expense ratio has improved from 63.94% in Q2 FY25, suggesting that the company has been somewhat successful in managing funding costs despite the challenging rate environment.

The housing finance sector has faced persistent headwinds from elevated borrowing costs as banks and financial institutions have maintained relatively high lending rates. Can Fin Homes, with its parentage in Canara Bank, benefits from access to relatively stable funding sources, but the company is not immune to market-wide funding cost pressures. The sequential decline in interest expenses from Q1 to Q2 FY26 provides some comfort, but sustainability of this trend remains uncertain given the volatile interest rate environment.

Industry Context: Navigating Competitive Housing Finance Landscape

The housing finance sector in India continues to witness intense competition, with banks increasingly aggressive in home loan origination and specialised housing finance companies fighting to maintain market share. Can Fin Homes operates in this challenging environment, competing against larger players with deeper pockets and more extensive distribution networks. The company's niche focus on salaried and self-employed individuals in Tier II and Tier III cities provides some differentiation, but competitive pressures on loan pricing remain a persistent challenge.

The broader macroeconomic environment presents a mixed picture for housing finance companies. Whilst urban housing demand remains robust, supported by aspirational home ownership trends and favourable demographics, affordability concerns have emerged in key metropolitan markets where property prices have surged. The Reserve Bank of India's monetary policy stance, which has kept interest rates elevated to manage inflation, has increased the cost of home ownership and potentially dampened demand at the margin.

Regulatory developments also shape the operating landscape. The National Housing Bank (NHB), the sector regulator, has implemented various prudential norms aimed at ensuring financial stability and protecting consumer interests. Can Fin Homes' compliance track record and governance standards, backed by public sector bank parentage, provide comfort on regulatory adherence. However, any tightening of capital adequacy or provisioning norms could impact profitability and growth trajectories across the sector.

Can Fin Homes' peer comparison reveals an attractive valuation profile relative to housing finance competitors. Trading at 12.17x trailing earnings, the stock commands a significant discount to peers like Home First Finance (31.39x), Aavas Financiers (25.85x), and India Shelter Finance (22.76x). This valuation gap appears unjustified given Can Fin Homes' superior ROE of 17.39%, which exceeds all peer companies in the comparison set. The price-to-book ratio of 2.12x also represents a discount to most peers, suggesting the market may be undervaluing Can Fin Homes' franchise quality and earnings power.

The higher debt-to-equity ratio of 6.88x compared to peers reflects Can Fin Homes' more leveraged business model, which amplifies both returns and risks. Whilst this leverage has contributed to the strong ROE, it also increases vulnerability to funding cost shocks and asset quality deterioration. The dividend yield of 1.49% positions Can Fin Homes favourably against most peers, providing income-oriented investors with an additional return component alongside capital appreciation potential.

Valuation Analysis: Reasonable Entry Point for Patient Investors

At the current market price of ₹801.15, Can Fin Homes trades at a trailing twelve-month P/E ratio of 12.10x, which appears reasonable for a housing finance company with demonstrated earnings growth and healthy return ratios. The historical context suggests this valuation is neither stretched nor deeply discounted. The company's price-to-book ratio of 2.11x implies the market values Can Fin Homes at approximately twice its net asset value, a premium justified by the ROE of 17.39% which significantly exceeds the cost of equity for most investors.

The PEG ratio of 0.81x, calculated by dividing the P/E ratio by the earnings growth rate, suggests the stock may be undervalued relative to its growth potential. A PEG ratio below 1.0 typically indicates that the stock is trading at a discount to its earnings growth trajectory, though this metric should be interpreted cautiously given the cyclical nature of the housing finance business and potential volatility in quarterly earnings.

The stock's recent trading range between ₹558.80 (52-week low) and ₹898.00 (52-week high) illustrates significant volatility, characteristic of small-cap financial services stocks that are sensitive to interest rate movements and sector sentiment. At ₹801.15, the stock trades 10.79% below its 52-week high, suggesting some recovery potential if housing finance sector sentiment improves and interest rate pressures ease.

From a dividend perspective, the latest payout of ₹6 per share translates to a yield of 1.50%, which provides a modest income component for investors. The ex-dividend date of July 11, 2025, indicates the company maintains a regular dividend policy, though the payout ratio remains modest, allowing for capital retention to support loan book growth. For income-focused investors, the dividend yield combined with potential capital appreciation offers a balanced return profile.

Shareholding Pattern: Stable Institutional Base with Evolving Mix

Can Fin Homes' shareholding structure reflects a stable promoter base and significant institutional participation, both positive indicators of corporate governance and investor confidence. Canara Bank, the promoter, has maintained a consistent 29.99% stake across the past five quarters, demonstrating long-term commitment to the housing finance subsidiary. This stable promoter holding, combined with zero pledging of shares, eliminates concerns about potential stake dilution or governance issues arising from pledged shares.

The institutional investor base, comprising 39.31% of total equity, provides stability and sophisticated oversight to the company's operations. However, the recent trends in institutional holdings reveal some concerning dynamics. Mutual fund holdings declined from 20.10% in December 2024 to 15.59% in June 2025, a significant 4.51 percentage point reduction that suggests domestic institutional investors have been reducing exposure to Can Fin Homes. This selling pressure from mutual funds, which are typically long-term oriented investors, may reflect concerns about near-term earnings growth or sector-wide derating of housing finance stocks.

Insurance company holdings also witnessed a decline, falling from 5.18% in March 2025 to 4.16% in June 2025, representing a 102 basis point reduction. The number of insurance companies holding stakes decreased from 14 to 9, indicating that several insurance investors have exited their positions entirely. This exodus of insurance capital, combined with mutual fund selling, has created an overhang on the stock and may partially explain the subdued price performance over the past year.

On a more positive note, foreign institutional investor (FII) holdings have remained relatively stable at 12.11%, with the number of FII holders increasing from 141 to 162, suggesting growing international investor interest. Other domestic institutional investors (DIIs) have increased their stake from 4.39% to 4.78%, with the number of DII holders rising from 12 to 18. This broadening of the institutional investor base, particularly amongst foreign and other domestic institutions, provides some offset to the mutual fund and insurance company selling.

Stock Performance: Underperformance Reflects Sector Headwinds

Can Fin Homes' stock price performance over the past year has been disappointing, with a negative return of 6.41% compared to the Sensex's 3.64% gain, resulting in a negative alpha of 10.05 percentage points. This underperformance reflects broader challenges facing the housing finance sector, including margin pressures from elevated funding costs, competitive intensity, and investor concerns about asset quality in a slowing economic environment. The stock's one-year performance has also lagged the Finance - Housing sector, which itself delivered a negative 11.58% return, indicating that Can Fin Homes has actually outperformed its immediate peer group by 5.17 percentage points.

The six-month performance tells a more encouraging story, with Can Fin Homes delivering a 12.89% return compared to the Sensex's 6.87%, generating a positive alpha of 6.02 percentage points. This recent outperformance suggests that the stock may have found a bottom and is beginning to recover from the sector-wide selloff that pressured valuations in 2024. The year-to-date return of 5.90%, whilst slightly below the Sensex's 7.44%, demonstrates resilience and suggests the stock is participating in the broader market recovery.

From a longer-term perspective, Can Fin Homes has delivered impressive returns, with a three-year gain of 59.40% outpacing the Sensex's 43.73% by 15.67 percentage points. The ten-year return of 302.99% significantly exceeds the Sensex's 208.48%, demonstrating the wealth creation potential of quality financial services companies over extended holding periods. These long-term returns underscore the importance of patient capital and the benefits of staying invested through market cycles.

The stock's technical positioning provides mixed signals. Trading above all key moving averages (5-day, 20-day, 50-day, 100-day, and 200-day), Can Fin Homes exhibits a bullish technical trend that turned positive on October 15, 2025. The MACD and Bollinger Bands indicators show bullish signals on both weekly and monthly timeframes, suggesting positive momentum. However, the KST indicator shows mildly bearish to bearish readings, indicating some underlying weakness in momentum. The beta of 1.35 classifies Can Fin Homes as a high-beta stock, meaning it tends to amplify market movements in both directions.

Investment Thesis: Quality Franchise at Reasonable Valuation

Can Fin Homes presents a compelling investment case built on several fundamental strengths. The company's quality grade of "Good", maintained consistently for 12 consecutive quarters since September 2022, reflects strong operational execution and financial discipline. The five-year sales growth of 13.91% and EBIT growth of 14.24% demonstrate the company's ability to expand its franchise whilst maintaining profitability. The average ROE of 16.81% over five years places Can Fin Homes amongst the more efficient capital allocators in the housing finance space.

The institutional investor base of 39.31%, despite recent selling by mutual funds and insurance companies, provides governance oversight and liquidity support. The stable promoter holding of 29.99% by Canara Bank, with zero pledging, eliminates concerns about potential governance issues or stake dilution. The company's dividend policy, with a latest payout of ₹6 per share yielding 1.50%, provides income whilst allowing for capital retention to fund growth.

However, the investment case is not without challenges. The company's financial trend classification of "Flat" in the most recent quarter signals that earnings momentum may be moderating, requiring close monitoring of upcoming quarterly results. The elevated debt-to-equity ratio of 7.42x, whilst typical for housing finance companies, increases vulnerability to funding cost shocks and asset quality deterioration. The recent selling by mutual funds and insurance companies, whilst potentially creating an attractive entry point, also raises questions about near-term earnings visibility.

The proprietary Mojo score of 71 out of 100, placing Can Fin Homes in the "BUY" category, synthesises these various factors into an overall assessment. The score reflects the company's strong long-term fundamental strength (average ROE of 16.81%), positive quarterly results for September 2025, and high institutional holdings, offset partially by concerns about technical trend weakness and moderating growth momentum.

Outlook: What Lies Ahead for Can Fin Homes

The outlook for Can Fin Homes over the next 12-18 months hinges on several critical factors. The trajectory of interest rates will significantly influence both funding costs and housing demand. Any easing in monetary policy by the Reserve Bank of India could provide substantial relief to housing finance companies through lower borrowing costs and improved loan demand. Conversely, sustained high rates could continue to pressure margins and dampen disbursement growth.

Asset quality will be a key monitoring point, particularly given the elevated leverage on Can Fin Homes' balance sheet. Whilst the company has historically maintained healthy asset quality metrics, any deterioration in non-performing assets or increase in provisioning requirements could impact profitability and investor sentiment. The company's focus on salaried borrowers and Tier II/III cities may provide some insulation from asset quality pressures compared to peers with higher exposure to self-employed borrowers or stressed geographies.

Competitive dynamics in the housing finance sector will continue to influence Can Fin Homes' ability to grow market share and maintain margins. Banks' increasing aggression in home loan origination, supported by lower funding costs and extensive branch networks, poses a persistent challenge. Can Fin Homes' differentiation through customer service, faster turnaround times, and local market knowledge will be critical to defending market position.