The recent rally in shares of non-banking finance companies (NBFC) has seen most of them outperforming the BSE Sensex since April. Share prices for a clutch of ten NBFCs have witnessed a rise of anywhere between 11% and 55%. Except two, all of them have outperformed the Sensex, which surged 21% during this period. Leading the pack is Muthoot Finance, which gained 53%, followed by Bharat Financial Inclusion at 40%. Muthoot Finance reported a net profit of Rs 265 crore, a rise of 61% year-on-year (y-o-y) for the three months ended March. The gold financing company’s stock rallied close to 30% after it declared its results on May 24, 2016.
Cholamandalam Finance, whose shares rose by 35%, and Mahindra & Mahindra Financial Services, which gained 30%, were the other top performers. Cholamandalam reported a net profit of Rs 192 crore for the fourth quarter of the previous fiscal, a rise of 42% Y-o-Y. The firm’s gross non-performing loans (NPLs) fell sequentially to 3.5% from 4.3%. Loan growth accelerated to 17% from 13% quarter-on-quarter. In a recent report on the performance of NBFCs, Kotak Institutional Equities Research noted that better-than-expected asset quality performance was the key highlight of Q4 of FY 16. “Collections were strong across segments; and stronger than expected in rural finance, CV loans,” it noted. However, analysts noted that they find limited upside likely.
“We do believe an improving cycle provides scope for earnings expansion but rich multiples imply that upside may be lower,” they said.The report also noted that consumer finance and microfinance segments continue to have strong growth. Bharat Financials reported an 84% growth in loan year-on-year in Q4FY16 at Rs 7,600 crore, while the net interest income grew 82%.MMFS’ gross non-performing loans (GNPLs) fell sequentially to 8% in Q4 FY16 from 10%. Cholamandalam Finance’s GNPLs declined to 3.5% from 4.3% sequentially.