NBFC Q3FY19E results preview: Earnings likely to be muted

For vehicle finance NBFCs, disbursement trends in December will see moderation too.

Jan 11, 2019 11:01 IST India Infoline News Service

NBFCs
NBFCs are likely to report a relatively muted Q3FY19. Further, loan growth and core earnings growth will remain subdued for the quarter. Apart from HDFC, others have maintained higher balance sheet liquidity or lower disbursements in the last quarter. For vehicle finance NBFCs, disbursement trends in December will see moderation too. NIMs will be impacted sequentially as well, due to elevated cost of funds and higher balance sheet liquidity. We do not expect any major worsening in asset quality in the quarter.
 
Top picks: Bajaj Finance, M&M Financial Services, Ujjivan Financial Services
 
Bajaj Finance (Rs cr.) Q3FY19E yoy% qoq%
Net interest income 2,924 23.4 7.1
Pre-provision profit 1,825 28.2 4.3
Loan loss provision 347 40.4 10.1
Adjusted PAT 961 25.3 4.0
 
Bajaj Finance's AUM is expected to grow ~35% yoy, slowdown in consumer durable and wholesale lending should be expected. Margins would likely come under pressure in the quarter leading to a moderation in NII growth. Asset quality is expected to remain benign on the whole. GNPL ratio stood at 1.5% as of 2QFY19 with a 65% PCR. To watch for: 1) direction of cost-to-income ratio, 2) commentary on growth outlook
 
Cholamandalam Investment & Finance (Rs cr.) Q3FY19E yoy% qoq%
Net interest income 779 -1.7 6.8
Pre-provision profit 578 23.2 11.1
Loan-loss provisions 69.3 -23.2 13.2
Adjusted PAT 336 34.8 10.3
 
CIFC AUM is likely to grow ~27% yoy driven by sustained growth momentum in vehicle finance (HCV, LCV and used vehicles) (~74% of AUM) and a pick-up in the Home Equity (HE) segment. Margins are likely to compress qoq, due to an increase in cost of funds.  Asset quality is likely to improve overall, GNPL ratio stood at 2.0% as of 2QFY19.
 
HDFC (Rs cr.) Q3FY19E yoy% qoq%
Total income 3,930 19 14
Pre-provision profit 3,490 20 16
Adjusted PAT 2,410 21 53
 
Advances are expected to increase ~17% yoy, we do not expect a slowdown, given HDFC’s well maintained ALM and ability to raise funds at the least cost in the market.  We expect NIMs to be flat-to-marginally-lower as a majority of the increase in cost of funds would be passed on to customers.
 
LIC Housing Finance (Rs cr.) Q3FY19E yoy% qoq%
Net interest income 962 7.2 -5.0
Pre-provision profit 929 15.4 -3.5
Loan-loss provisions 198 309.1 -9.2
Adjusted PAT 527 7.2 -8.1
 
LIC HF advances are expected to remain stable at ~15% yoy led by growth in LAP and developer loans. Margins are likely to come under pressure qoq due to increase in the cost of funds, while yield on loans could expand marginally. Retail GNPAs would continue to deteriorate yoy.
 
Mahindra & Mahindra Financial (Rs cr.) Q3FY19E yoy% qoq%
Net interest income 1,131 5.6 -3.0
Pre-provision profit 735 2.1 -6.6
Loan-loss provisions 208 4.5 -10.0
Adjusted PAT 364 6.4 -4.6
 
MMFS' AUM growth is likely to remain high at 18% yoy, driven by strong growth in SME and CV segments.  Margins are expected to contract sequentially, due to increase in cost of funds. Asset quality should continue to show improvement on a yoy basis. GNPL ratio stood at 11.6% as of 3QFY18.
 
PNB Housing Finance (Rs cr.) Q3FY19E yoy% qoq%
Net interest income 384 -6.6 0.2
Pre-provision profit 416 6.6 -4.9
Loan-loss provisions 69.3 23.5 7.1
Adjusted PAT 236 8.3 -6.9
 
We expect sharp slowdown in loan growth of PNB HF to 27% yoy in 3QFY19 (37% yoy in 2QFY19) due to high liquidity maintained in the quarter. Margins are likely to decline sequentially due to an increase in cost of funds and higher liquidity being maintained on the balance sheet. Overall asset quality is likely to remain stable qoq, GNPL ratio stood at 0.45% as of 2QFY19.
 
Shriram City Union Finance (Rs cr.) Q3FY19E yoy% qoq%
Net interest income 998 9.0 -2.1
Loan-loss provisions 267 1.7 -7.8
Adjusted PAT 229 1.7 -7.8
 
SCUF AUM growth is likely to come-off slightly at ~16% yoy. Growth would be driven by business loans (SME) and personal loans.  Margins are likely to come off sequentially due to an increase in cost of funds, coupled with a decline in yields.
 
Shriram Transport (Rs cr.) Q3FY19E yoy% qoq%
Net interest income 1,999 17.0 -3.0
Pre-provision profit 1,541 14.3 -5.0
Adjusted PAT 584 17.8 -4.3
 
SHTF AUM growth is likely to moderate from 2QFY19 levels at 18%.  Margins are likely to compress qoq, given an increase in cost of funds and decline in yields.  Asset quality is likely to improve qoq from the 2QFY19 level of 8.8% (on 90-dpd basis).
 
Ujjivan Financial Services (Rs cr.) Q3FY19E yoy% qoq%
Net interest income 290 31.8 11.5
Pre-provision profit 80 -9.3 14.3
Adjusted PAT 51 70.0 15.1
 
Ujjivan’s advances growth is estimated at 28% yoy, led by MSME and home loans and some pick-up in MFI.  Cost/income ratio would be flat, as it will convert a large part of the remaining 95 branches into bank branches.  Asset quality is likely to remain stable. GNPL ratio stood at 1.9% as of 2QFY19, with ~84% PCR. To watch for: 1) announcement of the CEO’s successor, 2) growth outlook.

Related Story