June 2017 Results Preview | July 2017
Financials - NBFCs
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Improving performance across segments
MFI and vehicle finance portfolios showing signs of recovery
Bharat Financial Inclusion
Cholamandalam Inv & Fin
LIC Housing Fin
M & M Financial
Repco Home Fin
Shriram City Union Fin
Shriram Transport Fin.
We expect NBFCs under our coverage to report PAT growth of 20% YoY in 1QFY18.
Post demonetization, we expect stable-to-improving trends in growth across product
segments in NBFCs. Pre-GST buying (especially consumer durables), strong auto OEM
growth and asset price inflation (CV) would also aid growth, in our view.
Farm loan waivers and expectations of normal monsoons have lifted sentiment in the
rural economy. Focus on collections has also helped companies to effect strong
recoveries. Vehicle financiers are expected to report healthy asset quality. Our
channel checks suggest that at-par delinquencies have come off in the MFI segment
and disbursements have resumed. This would benefit BHAFIN.
We expect continued decline in cost of funds, driven by excess liquidity in the system,
to offset yield pressure due to higher competition, thus keeping margins stable.
Within our NBFC coverage universe, BAF is likely to post 40%+ PAT growth, driven by
strong performance in CDs and 2W financing. Among HFCs, DEWH and IHFL are likely
to post earnings growth of 25%+ YoY, which is commendable. Repco Home Finance
and Bharat Financial Inclusion could report subdued performance.
Housing finance companies:
Barring Repco Home Finance, all HFCs under our
coverage are likely to post AUM growth in line with past trends. Loan growth for
REPCO may continue to be subdued this quarter. Although the Madras High Court
passed the order lifting the ban in March, there was some confusion due to which
the registrars did not take the order on board. However, only recently, the Court
issued a clarification that all properties that were registered prior to Sepember
2016, even by Gram Panchayats, are acceptable. For other HFCs, we expect stable
trends. We expect shift towards LAP for LICHF and towards corporate loans
(opportunistic in LRD segment) for HDFC to continue. Core retail housing yields
would remain under pressure due to higher competition but benefit on cost of funds
and change in product mix would partially offset pressure on spreads.
Asset finance companies:
We expect improvement in performance across asset
financiers. Bajaj Finance is likely to report strong AUM as well as PAT growth due to
strong performance in consumer durables (pre-GST buying). We expect growth for
vehicle finance players like SHTF and MMFS to pick up sequentially, helped by a
better rural economy. Auto OEMs have delivered decent volume growth in the
quarter. Asset quality is expected to improve with better liquidity post
demonetization and expectation of normal monsoon.
Our industry interaction suggests significant improvement
in at-PAR delinquencies in the MFI segment, driving increased risk appetite in this
segment. While provisioning for the stressed book will impact earnings for the
quarter, the outlook is much better. Barring Maharashtra, there has been a marked
improvement in collection efficiency across all states.
(Piran.Engineer@MotilalOswal.com); +91 22 3980 4393
(Alpesh.Mehta@MotilalOswal.com); +91 22 3982 5415
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