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Business News/ Companies / Company Results/  Q3 result preview: NBFCs likely to see healthy profit growth of 27% YoY amid moderating margins
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Q3 result preview: NBFCs likely to see healthy profit growth of 27% YoY amid moderating margins

Robust credit demand is likely to lead to healthy asset under management (AUM) growth for NBFCs in the October-December 2023 quarter. Overall, loan growth of around 20% YoY and 5% QoQ is estimated in Q3FY24 for NBFCs.

NBFCs’ loan growth accelerated in most segments, with retail loans ex-housing growing at more than 25% as of September 2023. Premium
NBFCs’ loan growth accelerated in most segments, with retail loans ex-housing growing at more than 25% as of September 2023.

The non-banking financial companies (NBFCs) are expected to see healthy profit growth despite net interest margins (NIM) moderating in the third quarter of FY24. While loan growth remains robust, asset quality is also likely to see minor improvement during the quarter.

NBFCs’ loan growth accelerated in most segments, with retail loans ex-housing growing at more than 25% as of September 2023. Core growth drivers including activity levels, CV utilizations, small business credit demand remains steady, but growth in unsecured personal loan and credit cards segment should moderate as lenders curtail lending to this segment due to rising risks, higher risk weight and RBI's nudge to lenders to exercise caution towards this segment, analysts said.

According to estimates by Motilal Oswal Financial Services, robust credit demand is likely to lead to healthy asset under management (AUM) growth for NBFCs in the October-December 2023 quarter. Overall, the brokerage estimates a loan growth of around 20% YoY and 5% QoQ in Q3FY24 for NBFCs.

Also Read: Q3 result preview: Building material companies expected to post strong volume growth with margin improvement

The extent of NIM recovery envisaged earlier in Vehicle Finance (VF) has not happened as yet because of the sustained rise in cost of funds (CoF), which might now peak by March/June 2024. For Housing Financiers, yields have maxed out and rising CoF would result in a sequential NIM compression, according to the brokerage firm.

A minor improvement in asset quality in Vehicle Finance as well as mortgages is expected. MFI lenders could see some slippages during the quarter, resulting in asset quality remaining more range-bound. 

“We do not expect any higher delinquencies in affordable HFCs. Credit costs are likely to remain benign, except for provisions for slippages from restructured pools and write-offs in the personal loan portfolio," Motilal Oswal said in a report.

Overall, it expects healthy profitability despite NIM moderation to result in around 27% YoY PAT growth for the NBFCs. Net Interest Income (NII) is estimated to grow 22%, while Pre-provisions Operating Profit is also seen to be growing 22% YoY.

“We remain constructive on Vehicle Finance and expect mortgages to benefit from a recovery in both supply and demand. We continue to prefer franchises that can manage their liabilities better than others to mitigate the impact on margins and companies with strong balance sheets and higher visibility on earnings growth," Motilal Oswal said.

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Let us take a look at the Q3 earnings estimates of NBFCs:

Bajaj Finance: The NBFC is expected to report AUM growth of 34% YoY, while margins and spreads are likely to decline 25 bps and 15 bps QoQ.  Credit costs are expected to rise 10 bps QoQ to 1.7%. Net profit is expected to rise 25.3% YoY to 3,720 crore in Q3FY24, while NII may grow 29.1% YoY to 7,650 crore.

L&T Finance Holdings: The company’s loan book is expected to grow 3% QoQ with strong retail growth, but moderation in wholesale segments. NIMs are expected to improve by 10 bps on a sequential basis. The brokerage anticipates credit costs to decline to 2.3% (annualized) in Q3FY24. Its net profit may rise 37.7%, while NII is expected to increase 3.8% YoY.

LIC Housing Finance: The housing financier is likely to see a huge jump of 128% YoY in its Q3FY24 net profit at 1,097.3 crore along with 22.4% growth in NII. Loan growth is expected at 6% YoY with a largely stable mix, while yields may decline on a sequential basis, leading to 25 bps compression in NIM. Commentaries on slippages from restructured pool, mortgage demand, and guidance on margins will be key monitorables.

Also Read: Q3 result preview: IT firms expected to post muted revenue, subdued profit amid weak demand

Mahindra & Mahindra Financial Services: The company’s net profit is estimated to fall 15.4% YoY to 532.1 crore, while NII is expected to rise 8.8% YoY to 1,688.7 crore. The company reported Q3FY24 disbursement growth of around 7% YoY and 16% QoQ. The brokerage expects 5 bps QoQ expansion in margins and credit costs at 1.3% in Q3FY24 versus 2.8% QoQ.

Muthoot Finance: Gold AUM growth is estimated to be around 3% QoQ in a seasonally weak quarter, while 5 bps sequential contraction in margins is estimated. The company’s net profit may rise 12.9% YoY to 1,018.2 crore. Commentaries on gold loan growth and margin guidance are key monitorables.

PNB Housing Finance: The company’s total AUM growth is expected to be 5% YoY, while cost ratios are expected to moderate despite investments in distribution capabilities. Credit cost is expected to increase 10 bps QoQ to 40 bps in Q3FY24, as per Motilal Oswal estimates. Net profit may jump 48.4% YoY to 399.5 crore, while NII is expected to fall 7.4% YoY to 664 crore.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

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Published: 04 Jan 2024, 01:22 PM IST
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