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MOSL: FINANCIALS – NBFC-Recovery a few quarters away; CY20 to be a year of consolidation

Financials – NBFC: Recovery a few quarters away; CY20 to be a year of consolidation; Asset quality a key monitorable

 

• We attended CRISIL's annual NBFC sector summit where the general consensus among participants was that the sector is still not out of the woods and it would take another four quarters for recovery.
• The near term is likely to be a period of consolidation; managements have prioritized further diversification of the liability structure, enhancement of tech capabilities, etc. Growth would take a backseat. CRISIL estimates AUM of the NBFC sector (ex-government owned NBFCs) to grow 6-8% YoY in FY20 followed by 8-10% CAGR over FY20-22. This would be driven by 12-13% CAGR in retail loans offset by negative 3-4% CAGR in wholesale lending over FY20-22.
• The auto sector is expected to witness divergent trends. Most participants expect recovery in CVs (especially M&HCVs) to be delayed due to industry overcapacity. Recovery in this space is at least 3-4 quarters away. On the other hand, recovery in passenger cars is expected sooner.