NBFCs likely to report best quarter three earnings in last few years | Earnings preview

Quarter three of the current financial year (FY23) probably will be the best third quarter in the last few years for non-banking financial companies (NBFCs). The expectation is based on the back of a strong quarter as disbursals remain high and recoveries remain strong despite the rising interest rates. However, this could temper the net interest margins (NIMs) given that cost of funds are likely to have risen faster.

The growth is likely to be driven by a strong show in segments such as housing, vehicles and consumer durables, where disbursals have been strong this time around.

For commercial vehicle finance companies, growth is expected to be in the mid-teens too.

For gold finance companies, the year-on-year (YOY) comparison may not be a good reading comparatively. However, sequentially (quarter on quarter) it's expected to be a good quarter with a sharp improvement in net interest margins (NIMs).

For consumer finance, the growth is expected to be better due to the improvement that one is seeing in the macro trends with stable margins and no asset quality woes.

Bajaj Finance is expected to report a net interest income (NII) growth of 23 percent YoY and about 5 percent sequentially, while profit after tax (PAT) is expected to grow at 31 percent YoY and flat sequentially.

Cholamandalam Finance is expected to see 11 percent growth in NII on a YoY basis and two percent sequentially. Net profit growth is expected to be at 13 percent YoY and about 5 percent sequentially.

“Cholamandalam is a well-run franchise. Given slightly rich valuations, we have a ‘hold’ rating but the stock has gone sideways over the last three-six months, it is quoting well below our fair value. We are expecting 24-25 plus percent AUM growth and profits of close to 6 billion for Cholamandalam,” he said.

Muthoot Finance may see a decline in NII by 13 percent on a YoY basis. However, sequentially it's expected to be a 5 percent and net profit (PAT) is expected to decline 12 percent on a YoY basis. But it can increase by 4 percent on a sequential basis.

Gold loans have become very popular lately, thanks to their flexibility and security. Banks and other financial institutions in India offer gold loans, with amounts ranging from Rs 1,500 to Rs 1.5 crore. The repayment tenure of these gold loans ranges between seven days to 240 months.

Sameer Bhise, Banking Research Analyst at JM Financial Institutional Securities believes that the period of transition for gold finance companies will continue.

“We will probably have a period of transition, which I think is still underway, while in the near term, the strong gold prices should see a bit of AUM tailwind for gold lending,” he said.

According to George Alexander Muthoot, Managing Director at Muthoot Finance, the company has been classified by the Reserve Bank of India (RBI) among top 60 non-banking financial companies (NBFCs) and top gold loan player.