Public-listed non-banking finance companies (NBFCs), which are backed by private equity investors, reported mixed results for the financial year 2013 due to regulatory changes and sluggish credit growth in the economy.
Among the prominent PE-backed and listed NBFCs, Shriram Transport Finance Co Ltd (STFC) and Magma Fincorp Ltd have seen growth in business, revenue and profits in a sluggish economy. However, gold loan NBFCs such as Muthoot Finance Ltd and Manappuram Finance Ltd saw the business take a beating.
Among the top performers for the financial year was Piramal Enterprises Ltd and Tiger Global Management LLC-backed Shriram Transport Finance Corporation that posted a
better-than-expected increase in assets under management (AUM).
All the three firms saw some rejig or impact in their portfolio mix that have affected their revenue and margins.
STFC: High loan growth surprises but profits squeeze
STFC’s consolidated net profit rose 11.8 per cent to Rs 1,463.42 crore on 13.5 per cent growth in total income to Rs 7,015.95 crore in FY13 over the last year. Net interest income rose 9.52 per cent to Rs 3,657.84 crore in FY 2013.
The results also encouraged investors to retain interest in these firms. Early this week, Piramal Enterprises acquired approximately 10 per cent stake through block deals in STFC, the Chennai-based commercial vehicle financier, for Rs 1,652 crore ($307 million).
The stake was sold by TPG Capital, which has made multi-bagger returns in the process and is expected to make between 6x-7x returns on this exit. (SEE: Piramal buys 10% stake in Shriram Transport for $307M; TPG Capital exits in a multi-bagger).
According to a report by HSBC on STFC, high loan growth was a surprise against the guidance, but its profitability suffered due to weaker margins and asset quality. However, the report said it continues to expect modest AUM growth, slightly lower margins and lower profitability in the coming years.
“AUM growth was much higher than expected at 23.5 per cent year on year while growth in the construction equipment space was robust at 58 per cent year on year. The disbursement growth remained robust, growing at an impressive 35 per cent year on year,'' said the report.
“In terms of segment wise growth, the used Commercial Vehicle (CV) to new CV mix remained fairly stable while the used CV portfolio witnessed some changes with a greater proportion of newer used CV becoming a part of the used CV portfolio,’’ the report added.
As the yields on the newer used CVs are relatively lesser, margins were impacted. The macroeconomic headwinds affected the asset quality with the gross non-performing loans and net non-performing loans rising by 31bp and 14bp sequentially.
Analysts expect modest growth of 15 per cent in AUM in the current financial year given the ongoing slowdown in the CV industry and modest economic growth domestically. They also expect the margins to remain subdued.
Magma Fincorp: Riding high on new product portfolios
Magma, which declared results last week, also reported strong growth driven by asset financing and improved spreads.
While the non-banking finance company backed by Kohlberg Kravis Roberts (KKR) and World Bank’s arm IFC, is among the few NBFCs which have a diversified portfolio, it is apprehensive of applying for a banking license and is still analysing the merits of becoming a bank.
It reported improved revenues primarily riding on the growth from its commercial vehicle business, improved spreads and through acquisitions of new product portfolios. The company reported a 54 per cent growth in revenue in the quarter ending March, 2013 and a 58 per cent growth for the year to Rs 1,701 crore.
However, its overall business increased to Rs 10,387 crore, up 40 per cent in FY13 on the back of incremental disbursement and acquisition of home portfolio of GE Money.
In FY13, the firm forayed into housing finance through an acquisition of GE Money Housing Finance (GEMHF) portfolio, an affiliate of GE Capital India, and also formed a JV for general insurance with Germany’s HDI General Insurance. It also acquired the Rs 250 crore auto lease business portfolio from Religare Finvest, a subsidiary of Religare Enterprises Ltd (REL) in February 2013.
“We are now present in nine product categories and with over 80 per cent of our branches in the Tier III cities, we have a lot of scope of cross-selling and improving our business in FY14. We also don’t see the need to become a bank’,’ said Sanjay Chamria, vice chairman and managing director, Magma Fincorp Ltd. He added that the company’s business would see a 20 per cent growth in FY14.
The firm at present has a majority of its portfolio coming from asset financing segments such as car, commercial vehicle and commercial equipment. However, it expects a rejig in its portfolio mix with the housing portfolio which now contributes about 8 per cent of its total loan book contributing up to 25 per cent in a couple of years.
Though the company said it has no plans of equity funding from PE players, it has headroom to issue equity shares up to Rs 500 crore.
Muthoot Finance: Profit slips on high provisioning
On the other hand, Muthoot Finance, the largest gold financing company in India in terms of loan portfolio, registered a growth of 13 per cent in its net profit to Rs 1,004 crore for the whole year ended March 31 ,2013 compared with Rs 892 crore of the previous fiscal.
However, it posted a 6 per cent drop in profit in the fourth quarter from the year earlier due to higher provisioning.
Though the total income from operations grew 9 per cent to Rs 1,411 crore on year-on-year basis, during the last quarter, the company’s provisions and write offs expenditure increased by over 10-fold to Rs 46.39 crore from Rs 4.67 crore in a year-ago quarter.
The firm saw its loan portfolio achieve a growth of only 7 per cent during the full year due to a tumultuous year marked by regulatory changes and market volatility. The gold loan firm faced heavy headwinds as the bullion price had dipped from the recent peaks, thus shrinking the value of collateral and putting a question mark over the growth prospects in the coming quarters.
“The company could achieve 13 per cent growth in net profit crossing Rs 1,000 crore in a tumultuous year marked by regulatory changes and sentiment driven market speculations affecting the interest of various key stakeholders," chairman MG George Muthoot stated.
Manappuram: Profit takes a huge beating on loan losses
Manappuram, another gold loan lender, took a major beating in its March quarter results. The firm saw its revenue fall by almost 50 per cent to Rs 312 crore in the quarter ended March, 2013 owning to loan losses. It reported a net loss of Rs 141 crore in the last quarter. For the whole year, it reported a net profit of Rs 208 crore compared with Rs 591 crore last year.
However, Manappuram’s poor performance is as expected as the company in its guidance has indicated about its loan losses and most investors fled pulling its stock down over 20 per cent in March.
The company’s share price last traded at Rs 16 a unit, up 0.95 per cent on the BSE in a strong Mumbai market on Wednesday.
“We expect an under-recovery of revenue on certain gold loan portfolios due to correction in the gold price. This may result in reduction in profit numbers for the fourth quarter ending March 31, 2013’’, said the company in March to analysts.