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Sector News

NBFCs could report best Q1 performance in many years

Feb 04, 2023

NBFCs could report best Q1 performance in many years

Non-banking finance companies are set to report 15-30 per cent rise in earnings, boosted by a strong growth in mortgage lending, and an increase in demand for farm equipment as farmers have begun their planting. 

"Farm-loan waivers and expectations of a normal monsoon have lifted the sentiment in the rural economy," said Motilal Oswal in a report. "Focus on collections has also helped companies make strong recoveries." 

Although the first quarter of a financial year is tepid, analysts expect it to be better than most years' driven by high growth in retail housing, strong collections from the farm sector, tractor business loan growth and better recoveries. They expect a stable quarter for microfinance businesses, consumer finance and housing finance. 

Housing finance companies may report net profit of 17 per cent-20 per cent due to lower cost of borrowing, increase in share of non-housing loans, and higher disbursements. 

Analysts reckon there will be a continued decline in cost of funds, driven by excess liquidity in the system, to offset yield pressure due to higher competition, which will keep their margins stable.

"We expect 10 bps improvement in NIM as spreads will find some support from decline in bulk borrowing rates, increase in share of LAP and non-housing loans and delay in passing of decline in interest rate reduction to existing borrowers," said Kotak Institutional Equities in its report.

While LIC Housing Finance is likely to tap into the developer and loanagainst-property (LAP) segment, HDFC is expected to expand into commercial real estate financing, the report said.

"LIC HFL's profit growth is expected to be 24 per cent as the base year had higher credit cost on developer book," said HDFC Securities.

Post demonetisation, analysts see improving trends in growth across product segments in NBFCs. Consumer durable from pre-GST buying and strong auto OEM growth aiding growth.

"We expect most NBFCs to deliver 15-30 per cent ear nings growth," said Kotak Institutional Equities in its report.

Bajaj Finance is expected to deliver 36 per cent growth in loans as the company benefits from pre-GST sales by dealers.

"After three consecutive quarters of 16-20 per cent growth, NBFC's 4QFY17 earnings plummeted due to provisioning (change in NPA recognition policy) and demonetisation," said Motilal Oswal in its report. "All NBFCs, barring Bharat Financial, are likely to report a healthy PAT performance."

For small finance banks, collection in the MFI book, loan book growth and provisioning requirement could weigh in on the first quarter earnings."Both Ujjivan and Equitas are expected to report muted earnings," HDFC Securities said in its report."Provisioning will remain elevated due to ageing of delinquencies and we see further increase in opex due to rollout of more branches."