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KRChoksey Research Report
The provisional growth numbers reported by a few banks reflect a healthy credit growth trajectory for Q1 FY24E. According to the Reserve Bank of India data, as of June 2023, the industry has seen a credit growth of 15.4% YoY/ 2.5% QoQ, despite seasonal weakness in Q1.
This was driven by the retail and small and medium enterprise segments. Personal loans expanded by 19.2% YoY for quarter-till-date versus 16.3% a year ago, mainly driven by housing and vehicle loans. Credit to industry registered a growth of 6.0% YoY QTD.
Size-wise, credit growth to large industries saw further moderation at 3.9% YoY. (2.1% a year ago).
Nevertheless, we expect the corporate segment to pick up gradually in FY24E, led by increased working capital requirements and push for huge capex.
The credit growth to the services sector accelerated to 21.4% YoY, primarily due to the improved credit offtake to non-banking financial companies.
Valuation:
We believe that banks under our coverage will continue to deliver strong earnings in Q1 FY24E, led by healthy traction in business across the segments and stable asset quality. We remain optimistic on HDFC Bank Ltd, (2.7 times FY25E price/adjusted book value), ICICI Bank Ltd. (2.4 times FY25E P/ABV) and State Bank of India (1.4 times FY25E P/ABV).
The asset quality of the NBFCs across our universe is expected to be stable. We do not see any stress on the loans on the back of lower slippages that will be range-bound in Q1 FY24E.
The recoveries for all the companies will continue to see improvement exceeding the pre-Covid range. Net interest margins are expected to see compression of 10-15 basis points QoQ for most of the players on account of liability re-pricing, leading to higher interest rates.
For housing finance companies, the pressure on NIMs is expected to be over and may see slight improvement on a sequential basis. The cost-to-income ratio will be elevated on a YoY basis but will see improvement in QoQ across our universe.
Overall earnings are expected to be healthy for the NBFCs, with profit after tax growth at an average of 46.2% YoY, led by healthy operating performance and overall business momentum for Q1 FY24E.
Valuation:
We remain watchful on the demand and margin trends for the NBFCs. We continue to like Bajaj Finance Ltd. (5.5 times FY25E P/BV) and Cholamandalam Investment and Finance Company Ltd. (4.7 times FY25E P/BV) for their brand equity and strong market positioning.
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