Research Digest | April 19, 2018
Growth accelerates but margin under pressure.
The 4Q FY18e results season will kick in middle of the month for NBFCs. The spike in bond yield by more than 100 bps in last 6 months will result in margin pressure for most of the NBFCs in 4Q FY18 especially for (HFC) Housing Finance Companies. Further continued pressure on loan pricing due to competition from banks will add more pressure on margins for HFCs. On the other hand Vehicle Finance NBFC should report robust loan growth on the back of strong CV sales during the quarter.
Key parameters to watch-
NIM- We expect NIM pressure for majority of NBFC especially all HFCs given the increase in 10 year G-Sec bond yield by more than 100 bps in last two quarters. Further most of the Banks have also increased their MCLR which will lead the cost of fund to rise for NBFCs. On the other hand most of the companies are also facing pressure on loan pricing due to intensive competition from banks. However we expect companies like CHOLAFIN, BAJFINANCE and SATIN will have minimal impact on margin while companies like LICHSGFIN and CANFIN HOME will have major impact.
Loan Growth- Due to lower base in 4Q FY17 for NBFCs, AUM growth is expected to remain robust for most of the companies. Pick up in loan growth for housing finance companies will be key watchable after slow down in real estate activity impacted by demonetization and RERA. However companies focused to affordable housing like DHFL will see good growth in its AUM. Further there have been strong auto sales in the country. Commercial vehicle sales has seen healthy pick up due to increased infrastructure activity, good demand from logistic companies, replacement demand and stricter overloading norm. We expect CHOLAFIN to be one of the key beneficiaries on this front and rising demand of used commercial vehicle will boost SRTRANSFIN loan growth going forward. AUM growth from Bajaj Finance and SATIN is also expected to remain robust.
Assets Quality- Assets quality of HFCs is expected to remain under control. SRTRANSFINFIN GNPA is expected to rise by around 2% as company will shift to 90 days recognition policy. Hence credit cost will be elevated. Improvement in assets quality for CHOLAFIN will be key positive. Credit cost for most of the companies will be under control other than micro finance lender SATIN which can post elevated provisions during the quarter. Recovery of GNPA for SATIN will be key watchable. Further management commentary on impact to collection in Rajasthan after loan waiver announcement will be important.
We continue to prefer growth companies with minimal impact on NIM from our NBFC horizon list. Growth would remain favorable for vehicle finance companies. We like CHOLAFIN and BAJFINANCE. We also prefer SRTRANSFIN and SATIN although 4Q FY18 profitability seems to be under pressure for both the stock but growth would be robust going ahead.