NBFCs Q2 Results Preview - Steady Quarter But For Weak Trends In Mortgages, Gold Loans: Motilal Oswal

BQ Prime’s special research section collates quality and in-depth equity and economy research reports from across India’s top brokerages, asset managers and research agencies. These reports offer BQ Prime’s subscribers an opportunity to expand their understanding of companies, sectors and the economy..Motilal Oswal Report.We expect our coverage universe of non banking financial companies – Lending financials to deliver 26%/28%/ 35% YoY growth in net interest income/pre-provision operating profit/profit after tax in Q2 FY24. Disbursement momentum remained buoyant in Q2 FY24, except for minor demand weakness in affordable housing loans (ticket size of up to Rs 3 million) and gold loans for mono-line gold loan companies like Manappuram Finance Ltd./Muthoot Finance Ltd. However, demand remained healthy for low-ticket mortgages with ticket size of Rs 1.0-1.5 million and self-construction.Uneven monsoons did not have any significant impact on vehicle demand or the asset quality of vehicle financiers. However, the asset quality could have been better, but for floods in certain parts of the country in July-August 2023, which had a marginal impact on collections. Low-ticket housing financiers (likes of Home First Finance Company India Ltd. and Aavas Financiers Ltd.) and vehicle financiers continued to deliver healthy assets under management growth. We expect gold financiers to report ~1-3% QoQ growth in gold loans. For Manappuram Finance in particular, we anticipate 1% QoQ growth in the gold loan book with a minor expansion in yields/margins. For our coverage universe, we estimate loan growth of ~17% YoY/~3.4% QoQ in Q2 FY24. For vehicle financiers, NIM is likely to bottom out in Q2 FY24 and may expand in H2 FY24 (versus H1) in the backdrop of a stable or declining interest rate environment. We estimate NIM to sequentially decline by ~10 basis points for Mahindra and Mahindra Financial Services Ltd. and ~5 bp for Shriram Finance Ltd., while we expect Cholamandalam Investment and Finance Company Ltd. to report a ~10 bp expansion in NIM. NBFC-micro finance institutions as a cohort continued to exhibit steady disbursement momentum and strong AUM growth. While there were flows between asset quality buckets, overall collections and asset quality remained healthy. We expect higher write-offs for Fusion Micro Finance Ltd. (leading to lower stage-III) because of a change in its write-off policy. For affordable housing finance companies, we expect NIM to remain decline marginally because of rising cost of fund. While prime mortgages continue to exhibit healthy demand, we expect weak loan growth of ~7% YoY for LIC Housing Finance Company Ltd. We expect NIM to contract QoQ for LIC Housing Finance but to remain broadly stable for PNB Housing Finance Ltd. The competitive landscape in gold Lending again seemed to have turned adverse (particularly in September 2023) with aggression from large banks and even NBFCs like IIFL Gold Loans and Bajaj Finance Ltd. Among gold financiers, we expect NIM to decline by ~5bp for Manappuram Finance and ~10 bp for Muthoot Finance. Cash flows (both urban and rural) have held up well and contributed to (relatively) better collection efficiencies and should lead to benign credit costs across most of the NBFCs in Q2 FY24 (similar to Q1 FY24). Diversified lenders such as Bajaj Finance, Poonawalla Fincorp Ltd., L&T Finance Holding Ltd., and non-vehicle segments of Shriram Finance with presence in micro, small and medium enterprise, two-wheeler, micro finance, consumer finance, pre-owned cars, and personal loans are likely to see healthy disbursement momentum, minor to no impact on NIM, and improvement in asset quality.We remain constructive on vehicle finance and microfinance relative to other niche segments such as mortgages or gold loans. We continue to prefer: 1) franchises that can manage their liabilities better than others to mitigate the impact on margins and 2) companies with strong balance sheets and higher visibility on earnings growth. Our top picks in the sector are Cholamandalam, Fusion MFI and Mahindra Finance..Click on the attachment to read the full report:.Banks, Insurance Q2 Results Preview - Earnings To Remain Resilient Despite NIM Compression: Motilal Oswal.DISCLAIMERThis report is authored by an external party. BQ Prime does not vouch for the accuracy of its contents nor is responsible for them in any way. The contents of this section do not constitute investment advice. For that you must always consult an expert based on your individual needs. The views expressed in the report are that of the author entity and do not represent the views of BQ Prime..Users have no license to copy, modify, or distribute the content without permission of the Original Owner.

NBFCs Q2 Results Preview - Steady Quarter But For Weak Trends In Mortgages, Gold Loans: Motilal Oswal

Net interest margin likely to bottom out in Q2 and exhibit stable, improving trajectory in H2 FY24.

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