Earnings preview: NBFCs to see modest growth in Q4, say analysts

Non-banking finance companies (NBFCs) are likely to see modest single-digit growth in their Q4FY25 net profit, driven by stable margins and growth in assets under management (AUM), analysts say. NBFCs’ commentary on growth visibility, asset quality trends, and the impact of potential rate cuts on margins will remain key monitorables this quarter.

“We estimate 13 per cent/15 per cent year-on-year (y-o-y) growth in net interest income and operating profit in Q4FY25 for our NBFC coverage universe, although PAT is expected to remain flat y-o-y. Excluding NBFC-MFIs (microfinance institutions), we expect 5 per cent y-o-y growth in PAT for our coverage universe,” said brokerage Motilal Oswal.

AUM growth

The brokerage expects 9 per cent y-o-y growth in AUM for housing finance companies (HFCs), including both affordable and large HFCs. Vehicle financiers are projected to report 20 per cent y-o-y AUM growth, while gold loan NBFCs are likely to record 29 per cent growth.

NBFC-MFIs, however, are estimated to post a 15 per cent y-o-y decline in AUM, while diversified NBFCs are expected to deliver 21 per cent growth.

“For our NBFC coverage universe, we estimate loan growth of ~15 per cent y-o-y and ~4 per cent q-o-q as of March 2025. Notwithstanding seasonality, demand trends and loan growth remained flat during the quarter due to calibrated growth in unsecured retail, muted disbursements in microfinance, and low mortgage volumes,” Motilal Oswal said.

Asset quality

Analysts say NBFCs’ asset quality is likely to deteriorate in Q4, especially in MFI loans, given the broader sector stress, which is expected to peak during the quarter.

According to Axis Securities, MFI major CreditAccess Grameen’s loan exposure in Karnataka is expected to contribute to higher stress due to challenges in collection efficiency in the State.

“However, we expect States excluding Karnataka to perform better. During the quarter, slippages are expected to remain elevated, weighing on asset quality. Credit costs will also stay high, though they may moderate on a q-o-q basis. Management commentary on growth revival and signs of asset quality stress peaking will remain key monitorables,” it said.

Margins

Axis Securities said net interest margins (NIMs) are expected to remain steady for housing financiers, while showing a slight negative bias for diversified and gold financiers. It expects a steady to marginal improvement in NIMs for vehicle financiers.

Motilal Oswal said the cost of borrowings for most NBFCs has either remained stable or seen a minor decline due to the repricing of external benchmark-linked loans. However, transmission through marginal cost of funds-based lending rate (MCLR) loans is yet to occur, and most NBFCs believe it will take place with a lag of 3-6 months.

“4Q NIM for NBFCs would exhibit stability or minor compression, primarily due to some pressure on yields. We expect NIMs to remain stable or see a minor improvement for fixed-rate lenders such as vehicle financiers, who will also benefit from any subsequent repo rate cuts over the next 3-6 months,” it said.

Brokerage house Nuvama said it expects Shriram Finance, Can Fin Homes, Five Star Finance, and Muthoot to report strong earnings. “For CIFC (Chola), a decrease of more than 15 per cent q-o-q in credit cost will be viewed negatively. MMFS (M&M Finance) posted a weak update. LTFH (L&T Finance) is expected to report flat q-o-q profit with higher drawdown,” it said.

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Published on April 13, 2025

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