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MOSL: FINANCIALS - NBFCs 4QFY18 Preview: Vehicle financiers lead the pack

FINANCIALS - NBFCs 4QFY18 Preview: Vehicle financiers lead the pack

 

• 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.
• Growth rates will remain healthy for segments like consumer durables, two-wheelers and vehicle finance. M&HCV demand has been strong in the quarter – GoI’s infra push being the 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 interactions with gold financiers suggest that growth is slowly coming back.
• Elevated G-Sec yields could play a spoilsport over the medium term from a spreads perspective. Yields have hardened 100bp+ from their lows six months ago. If they sustain at these levels, HFCs would be most impacted. Vehicle financiers have pricing power to maintain margins.
• BAF, CAFL, MASFIN, CIFC and PNBHF are likely to post earnings growth of 25%+ YoY, which is commendable, in our view. Our top picks in this space are HDFC, SHTF, BAF and CIFC.