Motilal Oswal Bullish On 9 NBFC Stocks, Recommends Buy With Attractive Valuation

Motilal Oswal in its December 2022 Result Preview Report on Financials - NBFCs has picked 9 quality stocks with a buy rating. These stocks are Bajaj Finance, Can Fin Homes, and Cholamandalam Investment & Finance, HDFC, Home First Finance Company, L&T Finance Holdings, LIC Housing Finance, Mahindra & Mahindra Financial Services, and MAS Financial Services. The brokerage with the given target price to the stocks claims potential gains of up to 25% from its current level. Here are the key takeaways from the stocks:

1. Bajaj Finance Limited

The brokerage has placed a buy on the stock with a target price of Rs 7820 apiece, claims gains up 19%. The stock last traded at Rs 6571 apiece on NSE. The stock has given 10.51% negative returns in 1 year, 56.7% positive returns in 3 years, and 247.63% multibagger returns in the last 5 years, respectively.

Brokerage's Views

• Estimate AUM growth of 30% YoY/ 8% QoQ.
• Opex is expected to remain elevated with CIR at ~36%.
• Margins and spreads expected to decline ~30bp QoQ.
• Credit costs expected to decline ~14bp QoQ in 3QFY23.

2. Can Fin Homes Limited

The brokerage assigned a buy on the stock with Rs 630 apiece target price, claims 16% potential upside. On NSE, the current market price of the stock is Rs 543.05 apiece. The stock has fallen 6.54% in 1 year, surged 37.39% in the past 3 years and 15.71% in the past 5 years, respectively.

Brokerage's Views

• Estimate disbursements to decline ~5% YoY.
• Margins are expected to decline ~5bp QoQ, driven by rising CoF and lag in transmission to customers.
• PAT expected to grow 32% YoY, driven by healthy loan growth and benign credit costs.
• Watch out for commentary on loan growth, margins, credit costs, and progress on the appointment of a new CEO.

3. Cholamandalam Investment & Finance Company Limited

The brokerage has placed a "buy" on the stock with a target price of Rs 880 apiece for 23% potential gains. The current market price (CMP) of the stock is Rs 718.5 apiece on NSE. The stock moved up 31.58% in a year, 137.09% in 3 years and 174.34% in 5 years, respectively. 

Broekrage's Views

• Estimate Business AUM to grow 31% YoY.
• Project spreads and margins are expected to contract by ~30bp/25bp QoQ.
• We estimate the overall GS3 to improve ~40bp QoQ.
• Watch out for guidance on loan growth and margins.

4. HDFC Limited

The brokerage has assigned buy on the stock with a target price of Rs 3,075 apiece. It sees 18% potential upside in share price if you buy the stock at the current market price. The stock last traded at Rs 2,625.70 apiece on NSE. The stock fell 1.85% in 1 year, whereas it gained 6.98% in 3 years and 54.16% in 5 years, respectively.

Brokerage's Views

• AUM growth is likely to be healthy (~15% YoY). We expect disbursements in individual loans to be stable QoQ.
• PPOP to grow ~12% YoY and estimate credit cost at ~28bp.
• We estimate margins to largely remain stable sequentially.
• Watch out for outlook on margins, home loan demand, and asset quality in the non-individual segment.

5. Home First Finance Company India Limited

Motilal Oswal has assigned a "Buy" on the stock with a target price of Rs 900 apiece. It sees a potential gain of up to 20%. The current market price (CMP) of the stock is Rs 755.7 apiece on NSE. The stock made its debut on the stock exchange on 3 February 2021, and since its listing, it has given 43.25% positive return. It has fallen 8.27% in 1 year. In the past 1 week, it gave 4.41% positive return.

Brokerage's Views

• Estimate robust AUM growth of ~35% YoY/7% QoQ
• Spreads and margins are projected to remain stable sequentially.
• Cost ratios expected to remain elevated, led by higher employee expenses and branch expansions.
• Watch out for outlook on loan growth, margins, asset quality

6. L&T Finance Holdings Limited

The brokerage recommends buy on the stock with a target price of Rs 110 apiece. Given the target price, the brokerage claims 25% potential upside. The stock is last traded at Rs 88.50 apiece on NSE. It has given 11.88% positive return in the past 1 year. Whereas, in the past 3 and 5 years, it has given 25.28% and 48.67% negative returns.

Brokerage's Views

• We expect the loan book to remain stable QoQ with moderation in real estate and infrastructure segment.
• NIMs and spreads are expected to remain stable sequentially.
• Anticipate the credit costs to decline to ~2.5% (annualized) in 3QFY23 (v/s 2.6% in 2QFY23).
• Watch out for commentary on how it plans to rundown the wholesale segments.

7. LIC Housing Finance Limited

Motilal Oswal suggests "Buy" the stock for 19% decent gain with a target price of Rs 500 apiece. The stock last traded at Rs 421.3 apiece on NSE. The stock has given 11.1% positive return in 1 year. In 3 and 5 years it has given 4.12% and 25.78% negative returns.

Brokerage's Views

• Expect loan growth of 11% YoY, with a largely stable mix.
• CoF and yields are expected to increase ~40bp and ~90bp QoQ, leading to ~55bp improvement in NIM.
• Estimate credit costs of INR4.1b in 3QFY23 v/s INR5.7b in 2QFY23.
• Watch out for commentaries on slippages from restructured pool, and guidance on margins.

8. Mahindra & Mahindra Financial Services Limited

Motilal Oswal has placed a buy on the stock with a target price of Rs 290 apiece and claims 24% potential upside. The current market price (CMP) of the stock is Rs 234.10 apiece on NSE. The has given maximum 53.01% positive returns in 1 year. Whereas it has a 30.17% negative return in 3 years and 51.1% negative return in 5 years.

Brokerage's Views

• Disbursements and business assets grew ~80% and 20% YoY respectively in 3QFY23.
• Estimate credit costs of INR3.1b (~1.6%) in 3QFY23.
• We expect ~40bp QoQ contraction in margins
• Watch out for guidance on margins, credit costs and commentary on potential removal of RBI ban

9. MAS Financial Services Limited

Motilal Oswal placed a buy on the stock with a target price of Rs 975 apiece. It claims 19% potential upside. The stock last traded at Rs 823.4 apiece on NSE. The stock has given 31.98% positive returns in 1 year and in 3 years it gave 4.58% negative returns and in 5 years it gave 35.31% positive returns.

Brokerage's Views

• AUM expected to grow 5% QoQ/~30% YoY.
• Margins are expected to decline ~10bp QoQ, due to rising CoF.
• Watch out for commentary on asset quality in partnered NBFCs.
• Expect provisions of INR76m in 3QFY23 (down ~37% QoQ).

Stocks, CMP, Target Price, & Potential Upside

Sr.No.	NBFCs	CMP (Rs)	Target Price (Rs)	Potential Upside (%)
1	Bajaj Finance	6571	7820	19
2	Can Fin Homes	543.05	630	16
3	Cholamandalam Inv. & Fin.	718.5	880	23
4	HDFC	2625.7	3075	18
5	Home First Finance Company	755.7	900	20
6	L&T Finance Holdings	88.5	110	25
7	LIC Housing Finance	421.3	500	19
8	Mahindra & Mahindra Financial Services	234.1	290	24
9	MAS Financial	823.4	975	19

Disclaimer

The stocks have been picked from the brokerage report of Motilal Oswal. 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.