Sharekhan Positive On NBFC Sector, Lists 6 Stocks To Buy, Sees Strong Upside Up To 22%

Brokerage firm Sharekhan is positive on the NBFC sector amid strong performance. The brokerage has listed six quality stocks from the sector with a Buy rating.

These six NBFC stocks are Housing Development Finance Corporation Ltd. (HDFC), LIC Housing Finance Ltd., Cholamandalam Investment & Finance Company Ltd. (Chola), Mahindra & Mahindra Financial Services Ltd. (Mahindra Finance), Bajaj Finance Ltd., and Bajaj Finserv Ltd.

Among these six stocks, Mahindra Finance and LIC Housing Finance are two midcap stocks, while the other 4 are large-cap stocks. The brokerage sees a potential upside of up to 22% from the current level.

NBFC - Strong Performance

According to Sharekhan, NBFCs in our coverage universe reported healthy AUM growth (14% y-o-y/4% q-o-q), led by strong disbursement growth across product segments. Among HFCs, Can Fin Homes (18% y-o-y/5% q-o-q) was the outperformer. HDFC Ltd. reported healthy trends in retail housing loans; but in the wholesale segment, growth was tepid for HDFC Ltd., thus overall growth moderated to 11% y-o-y/3% q-o-q.

In the vehicle finance segment, Cholamandalam Finance (36% y-o-y, 9% q-o-q) and M&M Finance (27% y-o-y, 7% q-o-q) were the outperformers. Bajaj Finance also reported healthy AUM growth (25% y-o-y/7% q-o-q). NIMs improved for HDFC Ltd. and LICHF and were largely stable for Can Fin, Cholamandalam, and Bajaj Finance.

The brokerage has said, "We believe the interest rate cycle is close to its peak, which should benefit these lenders in terms of margin improvement. Opex was higher due to increased investments in technology, building digital platforms, and collections. The earnings trajectory was strong, led by healthy operating profit and lower credit cost. Asset quality improved across NBFCs, with improvement in GS2/GS3/ NS3."

It added, "We expect a further decline in gross stage-2 and gross stage-3 loans. This should keep credit costs lower. Higher margins and lower credit cost should drive steady earnings growth."

NBFCs, CMP, and Potential Upside

NBFCs	CMP	Target Price	Upside (in %)
HDFC Ltd.	Rs 2652.9	Rs 3225	21.57%
LIC Housing Finance	Rs 364	Rs 435	19.51%
Chola	Rs 1065.7	Rs 1100	3.22%
Mahindra Finance	Rs 283.4	Rs 315	11.15%
Bajaj Finance	Rs 7037.15	Rs 7500	6.58%
Bajaj Finserv	Rs1466.5	Rs 1650	12.51%

Note: CMP - Current Market PriceStocks

Returns

1. HDFC - The stock is currently trading at Rs. 2,652.90/share on NSE. The stock has given 1.7.1% positive return in 1 the past 1 year, 49.7% in the past 3 years, and 44.14% in the past 5 years, respectively.

2. LIC Housing Finance - The last traded at Rs. 364/share on NSE, after declining 2.15% from its previous close. It has given 6.73% positive return in the past 1 year and 43.53% in the past 3 years, respectively. Whereas it has fallen 26.75% in the past 5 years.

3. Chola - On Friday, the stock closed 0.39% higher at Rs. 1,065.70/share on NSE. It has given 57.61% positive return in the past 1 year. In the past 3 years, it has given 608.58% multibagger return, and in 5 years, it gave 240.24% positive return.

4. Mahindra Finance - The stock's current market price on NSE is Rs. 283.40/share. It jumped 51.51% in the past 1 year and 79.88% in the past 3 years, respectively. It has fallen 41.88% in the past 5 years.

5. Bajaj Finance - The stock is currently trading at Rs. 7,037.15/share on NSE. It gave 19.3% positive return in the past 1 year, 187.98% in the past 3 years, and 221.79% in the past 5 years, respectively.

6. Bajaj Finserv - The last traded share price of the stock is Rs. 1,466.50/share on NSE. 1 year, it gave 17.59% positive return, in 3 years it gave 176.14% positive return, and in 5 years, it gave 143.38% positive return.

Disclaimer - The stocks have been picked from the brokerage report of Sharekhan. Greynium Information Technologies, 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.