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NBFCs
Apart from the ongoing regulatory changes which could structurally
decrease RoAs and RoEs, even cyclically, the sector is facing pressure in
terms of: (i) higher funding cost due to rising system-wide rates and lower
borrowings via the priority sector route; (ii) slowdown in loan growth and
higher NPAs due to a slowdown in the economy; and (iii) a slowdown in
fee income due to weak capital markets. Overall, we expect net profits of
NBFCs to be in the range -55% to 35% on a YoY basis. We expect
Manappuram to defy this trend in our coverage universe with 97% YoY
growth in net profit due to robust loan growth, pricing power on the asset
side and operational leverage in the business model.
NIM contraction: We expect net interest spreads of NBFCs under our coverage
universe to contract by 10bps-100bps on a QoQ basis due to rising system-wide
rates and lower borrowings via the priority sector route.
Diverse loan growth trends: We expect loan growth trends of NBFCs to vary
widely from 14%-82% YoY growth in the loan book. We expect MMFS and
Manappuram to show the best loan growth trends with ~43% and 82% growth
respectively in their loan books.
Increase in NPAs: Rising interest rates, increasing fuel prices coupled with a
slowing economy would lead to credit costs (as a percentage of assets) of NBFCs
increasing by 5bps-40bps on a YoY basis.
Slowdown in fee income: Fee income of NBFCs will decline by ~50% YoY driven
by: (i) lower loan sanction fee due to fewer sanctions and (ii) lower broking and
investment banking fee due to weak capital markets.
Preparing for upcoming results
We expect the stocks under our coverage to post -55% to +35% YoY change in
PAT (except Manappuram where we expect 106% YoY increase in PAT).
Ambit v/s consensus
Whilst no 3QFY12 consensus estimates are available, our FY12E earnings
estimates on average are 5% below FY12E consensus estimates for NBFCs under
our coverage.
Recommendation
Manappuram is our top pick amongst non-bank lenders as we believe that despite
the contraction in NIMs, the company is well placed to grow its earnings at a
CAGR of 50% over FY11-FY13 driven by robust loan growth and improvement in
operational efficiency. LIC Housing Finance is our top SELL recommendation as we
believe that the : higher proportion of its fixed rate portfolio, lower share of highyield
developer portfolio, increased borrowing to refinance portfolio bought from
its parent and the recent regulatory changes, would lead to contraction in NIMs.
Rising interest rates, a slowing economy along with a change in the borrower
profile could lead to an increase in the NPAs, which coupled with provisions for
standard assets would lead to a higher provisioning requirement. The current
punchy valuations of 1.8x FY13 P/BV are not factoring in these headwinds.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
NBFCs
Apart from the ongoing regulatory changes which could structurally
decrease RoAs and RoEs, even cyclically, the sector is facing pressure in
terms of: (i) higher funding cost due to rising system-wide rates and lower
borrowings via the priority sector route; (ii) slowdown in loan growth and
higher NPAs due to a slowdown in the economy; and (iii) a slowdown in
fee income due to weak capital markets. Overall, we expect net profits of
NBFCs to be in the range -55% to 35% on a YoY basis. We expect
Manappuram to defy this trend in our coverage universe with 97% YoY
growth in net profit due to robust loan growth, pricing power on the asset
side and operational leverage in the business model.
NIM contraction: We expect net interest spreads of NBFCs under our coverage
universe to contract by 10bps-100bps on a QoQ basis due to rising system-wide
rates and lower borrowings via the priority sector route.
Diverse loan growth trends: We expect loan growth trends of NBFCs to vary
widely from 14%-82% YoY growth in the loan book. We expect MMFS and
Manappuram to show the best loan growth trends with ~43% and 82% growth
respectively in their loan books.
Increase in NPAs: Rising interest rates, increasing fuel prices coupled with a
slowing economy would lead to credit costs (as a percentage of assets) of NBFCs
increasing by 5bps-40bps on a YoY basis.
Slowdown in fee income: Fee income of NBFCs will decline by ~50% YoY driven
by: (i) lower loan sanction fee due to fewer sanctions and (ii) lower broking and
investment banking fee due to weak capital markets.
Preparing for upcoming results
We expect the stocks under our coverage to post -55% to +35% YoY change in
PAT (except Manappuram where we expect 106% YoY increase in PAT).
Ambit v/s consensus
Whilst no 3QFY12 consensus estimates are available, our FY12E earnings
estimates on average are 5% below FY12E consensus estimates for NBFCs under
our coverage.
Recommendation
Manappuram is our top pick amongst non-bank lenders as we believe that despite
the contraction in NIMs, the company is well placed to grow its earnings at a
CAGR of 50% over FY11-FY13 driven by robust loan growth and improvement in
operational efficiency. LIC Housing Finance is our top SELL recommendation as we
believe that the : higher proportion of its fixed rate portfolio, lower share of highyield
developer portfolio, increased borrowing to refinance portfolio bought from
its parent and the recent regulatory changes, would lead to contraction in NIMs.
Rising interest rates, a slowing economy along with a change in the borrower
profile could lead to an increase in the NPAs, which coupled with provisions for
standard assets would lead to a higher provisioning requirement. The current
punchy valuations of 1.8x FY13 P/BV are not factoring in these headwinds.
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