Brokerage firm Prabhudas Lilladher has picked Bajaj Finance (BAF), Cholamandalam Investment and Finance Corporation (CIF) and Manappuram Finance Ltd (MGFL) as its top picks in the NBFC industry.
Brokerage firm Prabhudas Lilladher has picked Bajaj Finance (BAF), Cholamandalam Investment and Finance Corporation (CIF) and Manappuram Finance Ltd (MGFL) as its top picks in the NBFC industry. For Bajaj Finance, the brokerage has given a target price of ₹8,953, for Cholamandalam Investment & Finance Corporation, the brokerage has given a target price of ₹792 and for Manappuram Finance, Prabhudas Lilladher has given a target price of ₹144.
Research analysts at broking firm Prabhudas Lilladher said in a note that "We expect NBFCs under our coverage universe to report mixed earnings growth of ~4.25% QoQ, led by 1) vehicle financiers (CV upcycle) and retail loans." Margins decelerated marginally due to strong AUM growth and 2) rising cost of funds. However, overall we expect NBFCs to report margins of ~10.19% (vs 10.20% in Q2) under our coverage universe, due to strong disbursements and yield transmission cushion rising cost of funds. We expect improved asset quality and flat credit costs QoQ, as collections for most companies have recovered to pre-Covid levels. We expect vehicles like SHTF and CIFC Financiers will maintain their momentum (as shown in the last quarter), given strong demand for CVs. BAF is expected to report a strong 5.7% QoQ AUM growth with pristine asset quality, as their omni channel strategy continues to attract customers. acquisitions (3.1 million new customers in the third quarter Paying rich dividends for the customer(s). We rate Bajaj Finance (BAF), Cholamandalam Investment and Finance Corporation (CIF) and Manappuram Finance Limited (MGFL) as our top picks in the NBFC space."
He further added that "With strong AUM growth, we expect Q3'23 to be strong for NBFCs across the board. However, rate hikes at a faster pace and another wave of Covid could play spoilsport and hamper credit demand." NBFCs' net income is expected to inch higher on a QoQ basis on the back of better credit growth.We like BAF, CIFC and MGFL from the coverage universe and rate them as top picks. "
“As per the company's business update, AUM growth in Q3'23 was robust at 5.7% QoQ (lower than our expectation of 6.5%). Customer franchise stood at 66.0mn (+19.1% YoY/+4.9% QoQ) as of Dec 31-22. New customers for Q3'23 were 3.1mn (+19.2% QoQ). Both these parameters have continued to show strength and the company has managed to better the run rate achieved in Q2'23. Deposit momentum was also strong and showed 9.1% QoQ growth, at a time when there is intense competition for deposits between banks and NBFCs. The omni-channel platform will provide a fully integrated, seamless experience for customers to navigate seamlessly between online and offline channels and enable BAF to create personalized interfaces for users. Full roll-out of the omni-channel platform by FY23 will provide a fully integrated, seamless experience for customers with an improved UI/UX platform, upgraded web experience and increased penetration of Super Apps. Bajaj Finance has seen good traction in the non-captive two wheeler financing business launched in July. We recommend 'Buy' on BAF at TP of ₹8,953 (TP unchanged)," they said in a note.
“CIFC is expected to post strong QoQ AUM growth of 5% on the back of strong M&LCV, used vehicles and consumer/SME loans. Truck utilization levels have improved and fuel prices have been stable, increasing profitability for operators. New business (consumer and MSME segments) disbursements saw strong traction in Q2'23 and we expect this to continue in Q3'23. We can see sequentially safe margins on the back of strong growth in the high yielding portfolio. Recommend 'Buy' at TP of ₹792 (TP unchanged)," said research analysts at broking firm Prabhudas Lilladher.
“Manappuram Finance has seen a sharp correction and is 30% off its 52-week high and trades at attractive valuations of 1.0x/0.9x FY24/FY25 P/ABV. Margins are improving as we expect yields to continue rising and reach 22.1% from 21.9% in Q2'23. Manappuram's microfinance business and non-gold business (combined 35% of AUM) should see a strong performance with strong disbursements and asset quality, although gold AUM will remain flat. Microfinance companies should start reaping the benefits of new RBI norms like 'removal of pricing cap'. We believe the worst is over for Manappuram Finance and the company is now one of our Top Picks. Recommend 'Buy' at TP of ₹144 (TP unchanged)," he added.
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