NBFCs Q4 Results Preview - Demand Remains Robust; Net Interest Margin Pressure To Continue: Motilal Oswal

Motilal Oswal Report

We expect our coverage universe of non banking financial companies – lending financials to deliver 18%/16% /15% YoY growth in net interest income/pre-provision operating profit/profit after tax in Q4 FY23.

In vehicle financing, we expect disbursements to have remained healthy in Q4 FY23, driven by strong underlying demand and sectoral tailwinds.

Among housing financiers, we expect some demand moderation in higher ticket sizes, while affordable housing financiers continue to exhibit strong disbursement momentum. We expect a ~15% YoY/~5% QoQ loan growth in Q4 FY23 for our coverage universe.

Gold loan demand has improved in the lower ticket size (less than Rs 100,000) and gold financiers are likely to exhibit a 3-4% QoQ gold loan growth, despite the banks and recent NBFC entrants remaining aggressive.

For Manappuram Finance Ltd. in particular, we expect a sequential growth of 3-4% QoQ in the gold loan book with its continued focus on higher-yielding lower ticket gold loans.

We expect vehicle financiers such as Mahindra and Mahindra Financial Services Ltd, / Cholamandalam Investment and Finance Company Ltd. to continue to witness sustained margin compression in Q4 FY23 and in H1 FY24 as well.

Owing to the aggressive stance of the banks, financiers would be unable to pass on rate hikes to consumers; and thereby, the yields would take slightly longer to offset the impact of higher borrowing costs, leading to margin compression.

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