In the beginning of March, the impact of Coronavirus on Non-Banking Financial Companies (NBFC) was termed as ‘fairly insignificant’ as the sluggish economy remained one of the biggest worries. Now anymore.
In the beginning of March, the impact of Coronavirus on Non-Banking Financial Companies (NBFC) was termed as ‘fairly insignificant’ as the sluggish economy remained one of the biggest worries. Two-weeks later and the financial sector looks to be in the crosshairs, hit by a lockdown across the nation and subsequent shut down of businesses. “Though the impact of the epidemic would be partial during Q4FY20 earnings (limited to the month of March), the full impact stemming from Covid-19 on growth and delinquencies would be visible from Q1FY21,” said Emkay Global in a research report.
Owing to the shutdown of various businesses, the risk of a spike in non-performing assets looks like a real possibility. So is it time to avoid all NBFC stocks? Emkay Global recommends three stocks with revised target prices that could still help investors pocket returns upto 63% amidst the weak market sentiment.
Target Price: Rs 3,570
Although Bajaj Finance has a huge exposure to retail customers and stares at vulnerability owing to a lockdown, Emkay Global is eyeing gains in the stock in the medium and long term. We reiterate our theme around BAF being a pure-play India consumption story. “We remain confident of BAF management’s ability to manage growth momentum, supported by its wide geographic presence and diversified product offerings,” Emkay Global said. Although near term macro headwinds could steer the performance of the company. Currently prices at Rs 2, 600 the scrip has an upside of 37%.
Cholamandalam Investment Finance Company Ltd
Target Price: Rs 253
After having raised Rs 1,200 crore recently, Cholamandalam Investment (CIFC) is better placed to penetrate into various geographies, notes Emkay Global. CIFC has a huge customer base among the SME and MSME players through vehicle financing and home equity. “We like CIFC due to its healthy growth, diversified liability franchise and improving asset-quality trends. The company is better-placed to grab the market share in the vehicle financing segment, backed by its superior liability franchise and improved geographical reach,” Emkay Global said. 66% of CIFCs funding comes from banks. Currently trading at Rs 155 per share, an upside of 63 per cent is being eyed on the share.
Target Price: 1,974
With balance liabilities and longer tenure asset duration, Housing Development Finance Corporation Ltd is one of the safest bet in the NBFC space, said Emkay global. HDFC was able to maintain its market share even as competition got stiff and real estate sales slowed down, making it one of the preferred picks. HDFC’s AUM growth for the coming fiscal could fall dwn to 12% from the current 15%. However, under the best case scenario observed by Emkay Global, an upside of 49% can be expected on HDFC.