3 NBFC Stocks To Buy Showing Strong AUM Growth

Buy Shriram Finance, a Bluechip Company

According the coverage report, Shriram Finance clocked a healthy quarter. "26% YoY growth in disbursements to Rs 292.5 billion, and AUM growth of 5% QoQ and 13% YoY to Rs 1.77 trillion.  The AUM mix was largely stable, with commercial vehicles, passenger vehicles CE, and MSME forming 51%, 18%, 8% and 10% of the AUM mix, respectively. Even capital adequacy ratio ratio(CAR)was healthy at approximately 23%, of which, Tier I stood at approximately 21.4%. Its asset quality was stable, with GS3 at pre-COVID levels of ~6.3%. It maintained a healthy (51%) PCR on its Stage 3 loans and delivered a NS3 of sub-4%. Management guided that the cost of borrowings (CoB) should not increase in 4QFY23 since the incremental CoB is lower than the portfolio cost of borrowings. Shriram Finance Limited is borrowing at 8.5%-8.6% and the CoB can only decline."

"Shriram Finance's customer and product proposition positions it to operate in a benign competitive landscape, and gives it the pricing power to pass on its higher cost of borrowings to customers in new loans disbursed. We estimate margin compression of ~15bp YoY in FY24 to offset the impact of fair valuation under merger accounting. We believe the merged entity will emerge stronger than the respective standalone businesses, driven by better ability to cross-sell and due to the benefits on the liability side. We reiterate our 'Buy' rating with a price target of Rs 1,700," the brokerage has said.

The current market price of per share is Rs 1267.40 per share, with an intraday decline of 2.53% Its 52-week high is at Rs1509.25 per share and 52-week low is at Rs 1002.570. Over 1-year this NBFC large cap stock has given 2.82% returns.

Buy Cholamandalam Investment & Finance, a Bluechip Company

The brokerage coverage on Cholamandalam Investment & Finance, with a 'Buy' rating at a target price of Rs 880 explains the reasons for their view. Strong growth in earnings, well managed margins and strong disbursement driven largely by vehicle finance. "Cholamandalam Investment & Finance's profit after tax (PAT) grew 31% YoY to Rs 6.8 billion, while net interest income (NII) grew 17% YoY to Rs 16 billion in 3QFY23. Pre-Provision Operating Profit (PPoP) rose 13% YoY to Rs 10.8 billion. Net interest margin (NIM)/Core spreads were sequentially stable at 7.0%/6.7%, with an increase in borrowing costs offset by an expansion in yields. 9MFY23 PAT grew 24% YoY to ~Rs 18b.  GS3/NS3 improved ~33bp/20bp QoQ to 3.5%/2.1%, while PCR on S3 decreased ~50bp QoQ to ~41%. Credit costs stood at 0.7% (annualized) v/s 1.4% YoY. Disbursements remained strong and grew 100% YoY to Rs 455b in 9MFY23. CIFC's business AUM grew 9% QoQ/31% YoY to Rs 955b. Within vehicle finance, MUV/Cars/LCV/CE posted a sequential growth of 11%/8%/4%/9%.  Disbursements surged 68% YoY to ~Rs 175.6b. Vehicle Finance contributed ~60% to the disbursement mix in 3QFY2."

"Cholamandalam Investment & Finance has exhibited its capabilities to scale up the new businesses, with their contributions to the disbursement mix inching up to ~22% in 3QFY23. While the new businesses will drive higher opex and credit costs, higher yields should lead to RoTA accretion. Cholamandalam Investment & Finance is a franchise equipped to deliver strong AUM growth with benign credit costs (relative to peers), translating into a sustainable RoE of ~20% across economic cycles. The stock trades at 3.6x FY24E P/BV. We believe there will be a further expansion in multiples once investors gain more confidence in its execution capability in new product lines. Maintain Buy," as per the report.

The current market price of per share is Rs 770.30 per share, with an intraday growth of 2.73% Its 52-week high is at Rs 817.95 per share and 52-week low is at Rs 594. Over 1-year this NBFC large cap stock has given 16.79% returns.

Buy MAS Financial Services, a Mid Cap Company

"MAS Financial Services has successfully navigated a tough environment, with a large exposure to microloans and the MSME sector. It has developed a niche expertise to serve the MSME market and continues to demonstrate healthy loan growth momentum, while its asset quality is perhaps the best among MFI and SME lending peers. The company is placed well to achieve its target of a 20-25% CAGR, supported by robust liability management, strong capital base and healthy asset quality.

Asset quality was stable QoQ, with GS3/NS3 at 2.2%/1.6%. In MSME and SME lending, MASFIN is relatively better than its peers. Capital adequacy and liquidity on the balance sheet remained healthy. Standalone AUM increased by 7% QoQ and 33% YoY to Rs 76b. AUM in its housing subsidiary rose 31% YoY to Rs 4 billion. AUM of micro-enterprise loans (MEL)/ SME loans and 2wheeler rose 31%/25%/ 38% YoY. MAS Financial Services has started undertaking assignment transactions, the share of off balance sheet loans increased by 100bp QoQ to 17%. Historically, MAS Financial Services has managed its liquidity well (with higher sell-downs) and still continues to have an adequate buffer on its balance sheet. We will look to revise our estimates after the analyst call on 2nd Feb'2," according to the coverage report.

The current market price of per share is Rs 802.10 per share, with an intraday growth of 2.73% Its 52-week high is at Rs 938.25 per share and 52-week low is at Rs 469.05. Over 1-year this NBFC mid cap stock has given 17.71% returns.

Disclaimer

The stocks have been picked from the brokerage report of Motilal Oswal, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.