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Informist, Monday, Mar. 3, 2025

 

By Anjana Therese Antony

 

MUMBAI – The aggregate net profit of the 12 non-banking finance companies that are part of the Nifty 200 rose 20% on year, just a little over the 19% projected by analysts for the sector. These companies also comfortably beat the 10% profit growth analysts had estimated for the Nifty 200 universe. Of these 12 companies, the bottom line growth of seven outpaced that of the sector, while that of the other five came in below the sector estimate. The net profit of two companies--Housing and Urban Development Corp. Ltd. and Mahindra and Mahindra Financial Services Ltd.--increased at twice the projected rate of growth for the whole sector.

 

The net interest income of these 12 companies grew 19.4%, slightly above the 19.1% growth estimates by analysts for the sector companies. While seven companies beat the sector average estimate, five underperformed on this count. 

 

Other than the two toppers, HUDCO and Mahindra and Mahindra Financial, Muthoot Finance also beat the 18.5% sectoral growth estimate for net profit, at 33% on year. On the other hand, laggards among the 12 companies were large-cap players Shriram Finance Ltd. and Poonawalla Fincorp Ltd., which failed to meet estimates for the whole sector and the Nifty 200 companies. 

 

On net interest income, other than HUDCO, Muthoot Finance and Cholamandalam Investment and Finance Co. Ltd. reported higher-than-expected growth compared to the finance space as well as the top 200 companies. LIC Housing Finance was the only company among the 12 to post a fall in this metric, also failing to meet analysts' expectations on the overall sector and the Nifty 200 companies. 

 

While there are a total 18 finance companies in the Nifty 200, enough estimates were not available for six, and these have, therefore, been excluded from this analysis. The list of the companies excluded is available at the end of the story.

 

The net profit growth of 18 companies came in at 15.9%, below the consensus estimate of 18.5% for the 12 sector companies, but higher than the 10% profit growth estimated for the Nifty 200. The net interest income of these companies grew 18%, above the 19.1% growth estimated for the sector for the 12 companies and also above the 4% estimate for the entire Nifty 200 set. Two of these 18 companies – IRFC and Jio Financial – report interest income and not net interest income; which are two very different metrics. Interest income is the total interest earned on all assets, while the net interest income is the difference between interest earned and interest paid. This analysis includes the interest income of IRFC and Jio Financial and the net interest income of the remaining 16, but this did not skew the growth figures.

 

At first glance, it would appear that most finance companies managed to meet or slightly beat the Street’s sectoral target on key earnings parameters, and that the finance sector was among the three sectors – along with fast-moving consumer goods and information technology – whose earnings were largely in line with forecasts. However, a closer look at each company shows that the December quarter earnings were a mixed bag, driven by persisting pressure on asset quality and credit offtake. The rise in finance costs and liquidity challenges also capped the growth during the quarter, though the overall report card for the sector showed a far better performance than projections for the top 200 companies.

 

"Despite sectoral headwinds, underwhelming capex on the macro front and regional challenges played major spoilsport denting business traction, prolonged regulatory scrutiny led to recalibration of business models for some firms," Elara Securities said in its December quarter earnings review for the non-banking finance sector. The broking firm retained its bullish stance on wholesale lending businesses capitalising due to an improving capex cycle and likes Power Finance Corp., HUDCO, Muthoot Finance, and Bajaj Finance in the NBFC space.

 

SHOWSTOPPERS

HUDCO was the top performer in terms of both profit growth as well as net interest income growth; both grew more than 40% on year, twice the pace at which the industry profit and interest income was expected to rise. This growth was driven by a rise in loans, margins, and negative credit costs. This also made some broking firms tag HUDCO as their 'top pick' in the finance space.

 

However, HUDCO's performance did not contribute much to the sector's growth as its top line accounts for just 2% of the total and the bottom line contribution is hardly 3%. But its report card was way better than the top three heavyweights – Bajaj Finance, Bajaj Finserv, and Shriram Finance – which together constituted 32% of the total net interest income at the sectoral level and 33% of the net profit.

 

Another stellar performer was Mahindra & Mahindra Financial Services, whose net profit rose over 60% compared to just 6% the Street had expected, thanks to a whopping 97?ll in impairment on financial instruments. For Muthoot Finance Ltd., the surge in loan assets under management pushed its top line by more than 40% and also beat growth forecasts for the sector and the Nifty 200 universe.

 

From the list of the six entities for whom estimates were not available, only IREDA ticked the boxes on beating earnings expectations at the sectoral front and the top 200 companies. While healthy growth in interest income helped the company meet the target, an equally high interest expense ate into its profit.

 

LAGGARDS

While the sector managed to post growth that was largely in line, the picture was not as colourful for a few companies. Five of the 12 companies tracked by analysts missed sector estimates of net interest margin, four of the total 18 grew slower than what was expected for the top 200 companies, and less than half of 18 missed the growth forecast for the overall sector.

 

For instance, Poonawalla Fincorp's bottom line was swept away due to a surge in its expenses, the absolute value of which was almost the same as its top line. This made the company report a whopping 93?ll in net profit compared to an estimated 32?cline, which failed to meet the bottom line growth projected for the sector.

 

Similar was the case with Max Financial, whose net profit more than halved on year due to a sharp fall in policyholders' income from life insurance operations. While it failed to meet the net profit forecasts for the sector and Nifty 200, its NII beat projections.

 

The sharp fall in Aditya Birla Capital's earnings had no impact on the overall sector as its net profit and net interest income account for less than 0.1% of the aggregate. However, from a standalone perspective, the company's top line fell the most among finance companies, down almost 97% due to the slowdown in gains from sale of investments and absence of dividend income.

 

While estimates were not available for the heavyweight player Bajaj Finserv – whose NII accounts for 21% of the sector – the large net loss on fair value changes and faster growth in expenses evidently led to the slowdown in growth of the sector. Its net profit growth was the slowest in 12 quarters, growing only in low single digit, while the sector managed to grow in double digits.

 

The following table shows the performance of the 18 companies in the finance sector vis-a-vis the consensus estimate for each company as well as against the consensus estimate for the finance sector and the Nifty 200 index. Six companies for whom estimates were not available are separately given at the end of the table.

 

		Nifty 200 Q3 PAT growth 8.8%	Nifty 200 Q3 PAT growth consensus estimate 10%					Nifty 200 Q3 revenue growth 5.5%	Nifty 200 Q3 revenue growth  consenus  estimate 4%
Company	PAT beat analysts' estimate	Adjusted PAT growth %	Adjusted PAT growth estimate %	PAT beat sector estimate	PAT beat Nifty 200 estimate		NII beat analysts' estimate	NII growth %	NII growth estimate %	NII beat sector estimate	NII beat Nifty 200 estimate
Bajaj Finance	YES	16.70	14.64	NO	YES		NO	22.56	27.39	YES	YES
Cholamandalam Investment	YES	24.01	19.81	YES	YES		NO	32.98	39.56	YES	YES
HUDCO	YES	41.57	18.95	YES	YES		YES	47.30	27.14	YES	YES
L&t Finance	YES	-2.15	-2.84	NO	NO		YES	14.56	8.98	NO	YES
LIC Housing Finance	YES	23.14	10.97	YES	YES		NO	-4.63	-4.10	NO	NO
M&M Financial Services	YES	62.71	5.92	YES	YES		NO	12.54	15.24	NO	YES
Muthoot Finance	YES	32.69	29.08	YES	YES		YES	42.80	37.99	YES	YES
Poonawalla Fincorp	NO	-92.94	-31.70	NO	NO		NO	25.14	26.00	YES	YES
Power Finance Corp.	YES	23.03	18.85	YES	YES		YES	12.90	10.25	NO	YES
REC	NO	23.24	24.00	YES	YES		YES	19.63	18.52	YES	YES
Shriram Finance	NO	5.21	31.92	NO	NO		YES	14.31	11.94	NO	YES
Sundaram Finance	NO	16.33	23.20	NO	YES		YES	28.28	14.95	YES	YES
EXCLUDED							EXCLUDED
Aditya Birla Capital	---	-47.19	---	NO	NO		---	-96.51	---	NO	NO
Bajaj Finserv	---	3.40	---	NO	NO		---	21.72	---	YES	YES
Indian Railway Finance	---	1.98	---	NO	NO		---	-13.89	---	NO	NO
IREDA	---	26.78	---	YES	YES		---	38.85	---	YES	YES
Jio Financial Services	---	0.33	---	NO	NO		---	-21.93	---	NO	NO
Max Financial Services	---	-62.28	---	NO	NO		---	60.94	---	YES	YES

 

 

The following table shows the profit margins of the finance companies that are a part of the Nifty 200:

 

	PAT margin for Dec-24	PAT margin for Dec-23	PAT margin for Sept-24
Nifty 200	11.87%	11.51%	11.37%
Finance sector	51.13%	48.91%	49.56%
Company	PAT margin for Dec-24	PAT margin for Dec-23	PAT margin for Sept-24
Bajaj Finance	23.55%	25.69%	23.40%
Cholamandalam Investment	16.19%	17.67%	15.47%
HUDCO	26.63%	25.80%	27.35%
L&T Finance	15.29%	18.12%	17.31%
Lic Housing Finance	20.29%	17.12%	19.19%
M&M Financial Services	21.71%	16.01%	9.48%
Muthoot Finance	30.82%	32.43%	30.39%
Poonawalla Fincorp	1.77%	34.77%	(-)47.63%
Power Finance Corp.	31.85%	28.49%	33.09%
REC	28.46%	27.29%	29.51%
Shriram Finance	33.37%	20.38%	20.53%
Sundaram Finance	21.18%	22.30%	21.24%
Aditya Birla Capital *	41.16%	52.93%	77.15%
Bajaj Finserv *	6.96%	7.43%	6.19%
Indian Railway Finance *	24.11%	23.74%	23.37%
IREDA *	25.05%	26.78%	23.79%
Jio Financial Services *	67.25%	71.04%	99.36%
Max Financial Services *	0.63%	1.20%	0.84%

 

(Note: Analyst estimates for each index group are derived from estimates for companies part of the index.

* Estimates not available for the corresponding company.)

 

End

 

Data compiled by Vinod Bhovad

Edited by Avishek Dutta

 

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