4 hrs ago
Jefferies Sees Strong NBFC Earnings, Names Preferred Stocks
Jefferies expects many non-bank lenders to report strong results for the September quarter.
It forecasts profits will rise by 34% for the companies it covers, excluding Piramal Enterprises and IIFL Finance.
It expects lending to grow, with gold-finance companies growing fastest.
However, lenders are paying more to get money, which could reduce some of their profits from lending.
Jefferies expects margins to fall slightly at Bajaj Finance and Cholamandalam Investment and Finance Company.
Loan collections have remained steady, and tighter rules for lending have helped keep missed payments under control.
A weak monsoon could make it harder for some rural borrowers to repay loans.
Jefferies named four companies it currently prefers, but its report also highlights risks to watch.
Jefferies expects covered NBFCs’ September-quarter profit after tax to rise 34% year-on-year, excluding Piramal Enterprises and IIFL Finance.
Aggregate assets under management are forecast to grow 21%, with gold financiers leading at 44%.
Rising bond yields and funding costs may pressure margins; Jefferies forecasts declines at Bajaj Finance and Cholamandalam Investment and Finance Company.
The brokerage says steady collections and tighter underwriting have helped contain delinquencies, but a weak monsoon could affect rural demand and asset quality.
Jefferies’ preferred NBFC stocks are Bajaj Finance, Aditya Birla Capital, Cholamandalam Investment and Finance Company, and Shriram Finance.
- Who
- Jefferies and the NBFCs covered in its report.
- What
- Jefferies forecasts strong September-quarter earnings and identifies four preferred NBFC stocks.
- Where
- India.
- When
- The September quarter; the article does not specify a year.
- Why
- Healthy loan growth and lower credit costs may support profits, while higher funding costs and a weak monsoon pose risks.
Growth and earnings opportunity
Costs and credit risks
Earnings outlook
Growth and earnings opportunity
Jefferies expects 34% profit growth among covered NBFCs, supported by 21% loan growth and lower credit costs.
Costs and credit risks
Higher funding costs may pressure net interest margins, and the weak monsoon could affect rural demand and asset quality.
Sector valuations
Growth and earnings opportunity
Jefferies says valuations of around 2.2 times forward one-year book value are close to trough levels.
Costs and credit risks
The report also flags rising bond yields and potential margin declines at Bajaj Finance and Cholamandalam Investment and Finance Company.
Key facts
- Expected profit growth
- 34% year-on-year for covered NBFCs, excluding Piramal Enterprises and IIFL Finance.
- Expected AUM growth
- 21% year-on-year, compared with 20% in the June quarter.
- Fastest projected AUM growth
- Gold financiers: 44%.
- Bond-yield movement
- Yields on AAA-rated NBFC bonds rose 54 basis points since June-end.
- Marginal funding costs
- Increased by around 15–20 basis points.
- Preferred stocks
- Bajaj Finance, Aditya Birla Capital, Cholamandalam Investment and Finance Company, and Shriram Finance.
- Rural-weather concern
- The report cites a 13% monsoon deficit as a potential risk to rural demand and asset quality.
Quotes
Jefferies report
Brokerage research report on non-banking financial companies.
“Strong profit growth: For Sep Q, we expect covered NBFC’s profit to grow 34% YoY (ex-Piramal/ IIFL), led by 21% loan growth and lower credit costs.”
financialexpress.com
“Weak monsoon this year (-13% deficit) could impact rural demand and asset quality; mgmt commentary in this regard will be the key.”
financialexpress.com
Sources
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