Q3 result preview: NBFCs likely to see healthy profit growth of 27% YoY amid moderating margins

livemint.com:

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.