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MUMBAI: NBFCs are expected to report a 30 per cent growth in second-quarter profit while margins are likely to decline by 20 basis points due to tight liquidity and rising interest rates.
Increased incremental funding costs for NBFCs are expected to increase by 50 basis points, affecting housing finance companies.
Vehicle financiers, especially those giving funds to buy trucks and buses, are likely to witness a very strong quarter due to demand from the rural economy.
NBFC earnings will take support from strong momentum in the first two months of the second quarter.
The last 10 days after ILFS default came to light, however, have been challenging for them.
“We expect NBFCs to sustain their growth momentum and asset quality performance in Q2FY19,” said Edelweiss in a report.
“Given the recent turn of events, we expect funding to become expensive, risk appetite to wane, growth to moderate and companies to focus more on preserving liquidity.”
Within NBFCs, Motilal Oswal said that HDFC is best placed to navigate the rising interest-rate environment, with best-in-class liability structure and 30 per cent funding from public deposits.
Also, HDFC’s disbursement growth is likely to be strong and spreads improve as the company has raised lending rates during the second quarter.
Investment profit of Rs 787 crore from selling a stake in the asset management company should boost net income.
“Individual loan growth should improve momentum and we expect it to track mid-teen growth on a year-on-year basis,” said Edelweiss on LIC Housing Finance.
“Asset quality will be steady.
Pending resolution in the corporate loan book is not likely to crystallize this quarter as well, and net interest margins on the lower base set in Q1 could see a sequential uptick, with the hike in prime lending rates.”
Similarly, Indiabulls Housing Finance and Dewan Housing Finance are likely to show 30 per cent growth in assets.
Bajaj Finance is expected to report 50 per cent growth in net profit riding on robust consumer durable growth.
Vehicle financiers such as Shriram Transport Finance should report asset growth of 18-20 per cent while asset quality is likely to be stable, with no major hiccups.
Termination of corporate guarantees and no provisioning on them will be a major relief for Shriram Transport.
The floods in Kerala could have an adverse impact on growth momentum and asset quality due to the slowdown in activity levels for Manappuram and Muthoot Finance.
