Non-banking financial companies will likely post a strong earnings performance in the June quarter due to strong credit growth and improved asset quality, according to analysts.
“In sharp contrast to the otherwise weaker trends in the first quarter of any typical fiscal year, we anticipate the disbursement momentum to remain buoyant and asset quality to remain largely stable in April-June,” Motilal Oswal Financial Services said in a pre-earnings report.
The brokerage added that the strong new business volumes in the quarter under review were fuelled by a healthy demand for vehicle finance, mortgages, personal loans, business loans and even gold loans.
Broadly, the brokerage expects the net profit of NBFCs to rise 29% year-on-year(y-o-y) and net interest income to rise 19% y-o-y in the June quarter.
While high interest rates had previously dented the demand for home loans, analysts say that this negative impact has now waned. Also, gold loan NBFCs have been aided the recent rise in gold prices and reduced aggression from banks.
“April-June earnings growth momentum on a sequential basis for HFC-NBFC MFIs is likely to be better due to continuous benefit of upward re-pricing in asset portfolio and benefits arising from operating leverage,” ICICI Securities said in a report.
The brokerage expects the assets under management of housing financiers to rise at over 2% quarter-on-quarter (q-o-q), and of key microfinance companies to rise 4-5% q-o-q.
“Considering fixed rate book with average maturity of 18 months, a series of rate hikes in H1FY23 must support asset yields and also NIMs of NBFC-MFIs in Q1FY24E,” ICICI Securities said.
A key talking point in the June quarter results will be net interest margins. Here, analysts say that the impact will be segment specific.
While the net interest margin of gold loan companies and home loan companies are expected to remain intact, vehicle financiers are likely to see a compression in April-June due to liability re-pricing and the consequent increase in their cost of funds.
Specifically, Motilal Oswal Financial Services expects the margins of Shriram Finance, Mahindra and Mahindra Financial Services to decline by 10 bps on a sequential basis. The net interest margin of Cholamandalam Investment and Finance Co is expected to remain stable.
“On the margin front, we expect the NIMs to compress marginally as deposit re-pricing will be faster than new loans yields,” says LKP Securities Banking Analyst Ajit Kabi.
As far as asset quality is concerned, Kabi added that declining non-performing asset ratios will help keep credit costs in check.