2 weeks ago
Jefferies backs four NBFC stocks amid growth and rural risks
Jefferies, a financial research company, studied several lending companies.
It believes four NBFCs and HFCs could perform well.
These companies are Bajaj Finance, Cholamandalam Investment and Finance Company, Aditya Birla Capital, and Shriram Finance.
Their recent results were stronger than expected.
They earned more profit, grew their loan books, and faced lower credit costs.
Jefferies thinks Aditya Birla Capital has the biggest possible share-price gain among the four.
However, investors still need to watch rural demand and loan quality.
The brokerage also expects interest margins to stay mostly within a range in FY27.
Jefferies selected Bajaj Finance, Cholamandalam Investment and Finance Company, Aditya Birla Capital, and Shriram Finance as its top NBFC and HFC picks.
The brokerage reported 38% profit growth, 20% AUM growth, range-bound NIMs, and lower credit costs during the June quarter.
Bajaj Finance received a Rs 1,280 target price, implying approximately 18% upside, according to Jefferies.
Aditya Birla Capital had the highest projected upside at nearly 20%, based on Jefferies’ Rs 475 target price.
Jefferies identified rural demand, asset quality, and broadly range-bound FY27 net interest margins as key factors to monitor.
- Who
- Jefferies and the four selected lenders: Bajaj Finance, Cholamandalam Investment and Finance Company, Aditya Birla Capital, and Shriram Finance.
- What
- Jefferies identified four NBFC and HFC stocks as top picks and assigned target prices indicating potential upside of approximately 10% to 20%.
- Where
- The article discusses the NBFC and HFC sector and prices in rupees; no specific location is stated.
- When
- The assessment followed stronger-than-expected June-quarter earnings; Jefferies also cited healthy July trends and FY27 expectations.
- Why
- Jefferies expects healthy disbursements, loan growth, lower credit costs, and relatively stable asset quality to support earnings.
Risks and caution
Jefferies’ bullish view
Rural demand and asset quality
Risks and caution
Rural demand remains a concern, and investors should monitor asset quality and unsecured lending stress.
Jefferies’ bullish view
Jefferies said diversified lenders such as Bajaj Finance and Aditya Birla Capital appear better placed because of lower rural risks and benign unsecured trends.
Earnings outlook
Risks and caution
Net interest margins are expected to remain broadly range-bound in FY27, which could limit earnings expansion.
Jefferies’ bullish view
Jefferies expects healthy disbursements, loan growth, lower credit costs, and improving asset-quality trends to sustain earnings momentum.
Valuations
Risks and caution
Sector valuations have rebounded from post-conflict lows and remain a consideration for investors.
Jefferies’ bullish view
Jefferies said valuations are still near average levels despite the rebound, while its four picks retain projected upside.
Key facts
- Jefferies’ sector view
- June-quarter profit growth was 38%, led by 20% AUM growth, range-bound NIMs, and lower credit costs.
- Bajaj Finance target
- Rs 1,280, implying approximately 18% upside.
- Cholamandalam target
- Rs 2,100, implying approximately 12.9% upside.
- Aditya Birla Capital target
- Rs 475, implying nearly 20% upside.
- Shriram Finance target
- Rs 1,210 versus a stated current market price of Rs 1,099, implying approximately 10.1% upside.
- Strongest segment cited
- Auto NBFCs recorded 55% PAT growth, according to Jefferies.
- Key risks to monitor
- Rural demand, asset quality, and FY27 net interest margins.
Quotes
Jefferies analyst
Research analyst at Jefferies Bank & Trust
“June Q was another strong quarter for NBFCs/HFCs we cover, with 38% profit growth led by 20% AUM growth, range-bound NIMs and lower credit costs.”
financialexpress.com
“Diversified NBFCs Bajaj Finance/Aditya Birla Capital look better placed on lower El Niño/rural risks and benign unsecured trends.”
financialexpress.com
Sources
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