NBFCs on a high, 5 stocks that could give good return

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Published: May 6, 2016 1:30:20 PM

On an average, NBFC stocks have given a return of 3 per cent during April 1 and May 5. On the other hand, benchmark index BSE Sensex slid marginally 0.03 per cent during the same period.

NBFCs stocks in focusOn an average, NBFC stocks have given a return of 3 per cent during April 1 and May 5. On the other hand, benchmark index BSE Sensex slid marginally 0.03 per cent during the same period. (Photo: Reuters)

Most non-banking financial companies (NBFC) are trading higher on Dalal Street with shares like Capital Trust surging nearly 36 per cent since the beginning of the ongoing financial year 2016 till May 4. Other NBFC majors such as Mahindra & Mahindra Financial Services, Manappuram Finance and Shriram Transport Finance gained 25 per cent, 14 per cent and 11 per cent, respectively, during the period.

So far, around 18 NBFCs have announced their earning figures for the quarter ended March 2016. On an average they reported nearly 15 per cent year-on-year growth in net profit figures. Companies such as Shriram Transport Finance registered 71 per cent rise in net profit at Rs 143.92 crore for the quarter ended March 2016 against Rs 84.23 crore in the same quarter last year. Cholamandalam Investment & Finance and Capital Trust reported 42 per cent yoy and 118 per cent yoy rise in bottom line figures for the quarter ended March 2016.

Sharekhan in April projected non-banking financial companies (NBFCs) may report healthy growth in profits driven by healthy growth in NII. On the valuation front, Sharekhan in a research note said, “The risk-return scenario seems favourable in private banks and NBFCs due to much better capital ratios, growth in retail segment and higher provision coverage versus that of public sector banks.”

On the losing side, shares of Indo Asian Finance, Comfort Infotech, Morgan Ventures and Kailash Auto Finance plunged 41.61 per cent, 30.70 per cent, 28.58 per cent and 24.46 per cent since April 1. On an average, NBFC stocks have given a return of 3 per cent during April 1 and May 5. On the other hand, benchmark index BSE Sensex slid marginally 0.03 per cent during the same period.

If you are looking for some NBFC shares to bet on in 2016, we collate five stocks which can give you good return.

Capital First
Recommended By: Zerodha
This is probably one of the better-managed NBFC in the country focused on retail finance. Their asset quality is good, with gross NPAs of less than a percent. The company is focused on both double-digit growth and deeper market penetration. The stock can do well over the next 12 months, feels Zerodha.

Cholamandalam Investment & Finance
Recommended By: Religare Institutional Research
Why Buy: Cholamandalam Investment & Finance reported 41.92 per cent rise in its consolidated net profit at Rs 193.82 crore for the quarter ended March 2016. It had reported a net profit of Rs 136.57 crore in the same quarter a year ago. Religare has upgraded Cholamandalam FY17/FY18 earnings estimates by around 10 per cent each, given the improvement in margins and decline in operating cost ratios. The brokerage house has ‘Buy’ rating on Cholamandalam with a March 2017 target price of Rs 1,000 (revised from Rs 850 earlier).

Shriram Transport Finance
Recommended By: Motilal Oswal
Why Buy: Shriram Transport Finance is well placed to ride the upcycle. Delayed pick-up in infrastructure activities, lower agricultural output and performance of equipment book are the key near-term risks. Led by better than expected growth and asset quality performance Motilal Oswal upgraded STFC FY17/18 estimates by around 5 per cent. The brokerage house has ‘Buy’ rating on STFC with target price of Rs 1,162.

Can Fin Homes
Recommended By: Motilal Oswal
Why Buy: Can Fin Homes is the fastest growing housing finance companies among listed companies with an expected loan growth of 26 per cent CAGR over FY16-18E. Further Can Fin has the best in class asset quality with GNPAs at 0.19 per cent, nil NNPAs and 100 per cent provision coverage. Motilal Oswal expects Can Fin to deliver net profit CAGR of 30 per cent over FY16-18E with an improvement in ROE from 18.9 per cent in FY16 to 22.7 per cent in FY18E. The brokerage house has ‘Buy’ rating on Can Fin Homes with target price of Rs 1,550.

L&T Finance Holdings
Recommended By: Prabhudas Lilladher
Why Buy: For the quarter ended March 2016, the company reported 16.15 per cent year-on-year rise in net profit at Rs 235.98 crore for the quarter ended March 2016. It has reported PAT of Rs 203.18 crore in the same quarter last year. According to Prabhudas Lilladher, the company reported steady growth in overall AUMs. The brokerage house has ‘Buy’ rating on L&T Finance Holdings shares with revised target price of Rs 80 from Rs 75 earlier.

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