NBFCs earnings rise on improved asset quality, high AUM growth

NBFC Earnings Review

Non-banking finance companies (NBFCs) reported a healthy growth in net profit in the first quarter of the current financial year, which was aided by improvement in the asset quality and stronger growth in assets under management. However, in the reporting quarter, cost of funds of most NBFCs have gone up substantially.

According to a Moneycontrol analysis, NBFCs reported up to 100 percent on-year net profit in the April-June quarter, which was in line with or above the estimates of brokerage firms.

Among the top NBFCs, Bajaj Finance reported a net profit of Rs 2,959 crore in the first quarter of FY24, as against Rs 2,356 crore in the same period last year. Bajaj Housing Finance’s net profit rose by 46 percent to Rs 462 crore in this period.

Similarly, L&T Finance Holdings’ net profit surged 103 percent to Rs 531 crore and the profit of Shriram Finance rose just over 25 percent to Rs 1,675.44 crore.

“Profitability across NBFCs has improved sharply in the first quarter due to strong credit growth and improved asset quality. The disbursement momentum has remained buoyant in the first quarter,” said Swapnil Shah, Director-Research, StoxBox.

Also read: Shipbuilding stocks Cochin Shipyard, Garden Reach surge over 33% in past 3 trading sessions, defy market weakness

Improved asset quality

The asset quality of most NBFCs has seen a sharp improvement in the reporting quarter. Cholamandalam Investment and Finance Co Ltd’s gross non-performing assets (NPA) fell to 4.30 percent as of June 30, as compared to 4.63 percent as of June 30, 2022. The net NPA of the company fell to 2.82 percent in the June quarter, from 3.11 percent in the similar period last year.

The Gross NPA of Poonawalla Fincorp eased in the reporting quarter by 126 basis points (Bps) on-year to 1.42 percent and the net NPA by 35 bps on-year to 0.76 percent.

One basis point is one-hundredth of a percentage point.

In the April-June quarter, the gross NPA of Bajaj Finance eased to 0.87 percent from 1.25 percent in the year-ago quarter. Similarly, net NPA fell to 0.31 percent in Q1FY24, from 0.51 percent in Q1FY23.

Shriram Finance’s gross stage 3 assets fell to 6.03 percent in the June quarter, from 6.21 percent in the yeara-go period. “I don't see any worry about asset quality. In fact, honestly, I think we are seeing one of the best periods for me, actually, one of the best periods of asset quality in both the segments,” said Y S Chakravarti, MD & CEO– Shriram Finance, during an earnings call.

Assets under management

The assets under management of most NBFCs grew in the range of 18-41 percent in the April-June quarter. “Volumes in the quarter under review were fuelled by healthy demand for vehicle finance, mortgages, personal loans, business loans and even gold loans,” Shah of StoxBox added.

Muthoot Finance reported a 19 percent on-year growth in their assets under management (AUM) to Rs 67,639 crore in the April-June quarter.

The AUM of Poonawala Fincorp grew 41 percent on-year to 17,776 crore in the quarter ended June.

Shriram Finance’s AUM rose to Rs 1.93 lakh crore as on June 30, compared to 1.63 lakh crore as on June 30, 2022. This shows a growth of 18.56 percent on-year.

Similarly, Cholamandalam Investment and Finance Co reported a 40 percent on-year growth in its AUM to Rs 1.15 lakh crore in June quarter.

Also read: China & Europe are sputtering when it comes to growth: JP Morgan’s Jahangir Aziz

Cost of funds

The cost of funds of NBFCs rose by up to 22 bps on a quarterly basis during April-June following the increase in the cost of bank term loans, analysts said.

As per a Moneycontrol analysis, the cost of funds of these entities on an annual basis surged sharply, up to 110 bps.

The cost of funds of Bajaj Finance and Bajaj Housing Finance rose by 22 bps and 19 bps on-quarter, respectively. In the April-June quarter, Bajaj Finance’s cost of funds stood at 7.61 percent and Bajaj Housing Finance’s was at 7.67 percent, according to the investor presentation.

While the cost of funds of L&T Finance rose by 6 bps, that of Shriram Finance climbed by 7 bps, and that of Cholamandalam Investment and Finance Company surged by 11 bps.

“Globally, we are seeing a rising interest-rate scenario. This has led to higher cost of funds for Shriram Housing Finance. Despite that, we have contained our cost of funds, to a large extent, by booking fixed-rate loans at lower levels and/or booked loans with annual resets,” GS Agarwal, Chief Financial Officer of Shriram Housing told Moneycontrol in an interview on August 2.

Shah said the increased cost of funds for auto NBFCs and affordable HFCs should reflect on NIMs which are likely to be under pressure going forward.