BFSI Q3 Results Preview - A Continuation Of H1 FY24 Performance: Axis Securities

Axis Securities Report

Banks - Margin compression to continue

Robust Systemic Credit Growth Driven by retail, small medium enterprise:

The systemic credit growth (as of December 15, 2023) stood at ~20% YoY (~15.7% YoY excluding-HDFC Bank Ltd.). It continues to remain healthy and is largely being driven by retail and SME lending along with continued recovery in corporate lending.

The banks that have reported their provisional numbers so far have reported healthy credit growth. Taking cue from these trends, we expect the credit growth for banks under our coverage to remain healthy.

Going forward, we will remain watchful of management commentary on growth in unsecured lending, given the Reserve Bank of India regulation on increasing risk weight, which could lead to some moderation in these segments.

NBFCs - Business Momentum Robust, Margin Trends Divergent!

We expect Q3 FY24 to be a healthy quarter for non-banking financial company in terms of disbursement and assets under management growth. Margin trends across financiers will remain divergent. Asset quality is expected to remain stable.

Disbursement trends for affordable housing financiers under our coverage are expected to be varying during Q3 FY24E. While Aptus Value Housing Finance India Ltd. is expected to continue its growth momentum, thereby registering a healthy 29% YoY AUM growth, Can Fin Homes Ltd.’s disbursement growth is expected to be flattish QoQ on the back of the ongoing process upgradation, keeping AUM growth slower at ~14% YoY.

However, margins for both housing financiers are likely to remain stable or improve slightly, aided by improving lending yields. Credit costs are expected to remain under control with asset quality improving.Outlook on growth and comments on margins remain key monitorables.

Disbursement growth for vehicle financiers is likely to remain buoyant, driving healthy AUM growth.

However, margin recovery taking slightly longer than anticipated earlier. We believe margins for the vehicle financiers will remain stable or moderate slightly. Asset quality improvement will continue, keeping credit costs in check.

Gold Financiers under our coverage (Manappuram Finance Ltd.) are expected to report strong growth in the non-gold portfolio, while gold loan growth will remain muted. Gold loan yields are expected to hold up well, however, pressure on cost of funds will weigh on the margins. Asset quality improvement is likely to continue.

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