MOSL: FINANCIALS - NBFCs 3QFY18 Preview-A good quarter-Festive season strong across segments

​FINANCIALS - NBFCs 3QFY18 Preview: A good quarter; Festive season strong across segments

** Core housing growth has stabilized post RERA implementation, and tier II and III locations are the key growth drivers. For housing finance corporations (HFCs), we expect the share of non-retail loans in the overall portfolio to inch higher.

** The festive season has been strong across major segments. Growth rates will remain healthy for segments like consumer durables, two-wheelers and vehicle finance. M&HCV demand has been strong in the quarter - GST a key driving factor.

** Farm loan waivers and normal monsoon have lifted sentiment in the rural economy. The focus on collections has also helped companies ensure strong recoveries. Vehicle financiers are expected to report healthy asset quality and growth.

** We expect a gradual improvement for microfinance institutions (the most impacted segment post demonetization) in terms of both growth and asset quality. Our interaction with gold financiers suggests that growth is slowly coming back.

** Current growth rates remain strong across segment however; elevated GSec yields could play a spoilsport over the medium term from spreads perspective. Yields have hardened 70-80bp from their lows six months back. If they sustain at these levels, HFCs would be most impacted. Vehicle financiers have pricing power along with the favorable base (due to transition to 90dpd) for margins

** BAF, CAFL, CIFC and PNBHF are likely to post earnings growth of 25%+ YoY, which is commendable, in our view. We expect positive surprises from Repco, SHTF and CIFC. Our top picks in this space are HDFC, Repco, CIFC and LTFH.