Finance

This stock is ICICI Securities’ top pick among NBFCs for 2020

Updated : December 17, 2019 03:30 PM IST

The stock of Cholamandalam Investment & Finance has risen over 23 percent in 2019

The Chennai-based NBFC managed assets worth Rs 59,292 crore as on September 30

The year 2019 is most probably going to be a forgettable year for most Non-banking Finance Companies (NBFCs) and Housing Finance Companies (HFCs) except a few marquee names that outperformed despite the demand slump.

“While their outperformance was partly due to their brilliant franchises, it was also helped by the relatively low competitive intensity from their peers, which led to market share accretion for them,” ICICI Securities said in a report.

ICICI Securities has Cholamandalam Finance as its top pick for the year 2020 among the NBFC space.

Cholamandalam Investment & Finance along with hosing finance companies HDFC Ltd and Aavas Financiers delivered absolute positive returns in CY19-TD primarily because of their strong franchises and better execution capability, the brokerage said.

The stock of Cholamandalam Investment & Finance has risen over 23 percent in 2019.

ICICI Securities raised the Target Price of the stock to Rs 350 from Rs 335 earlier and expects RoE of 20.7 percent in FY20 and 22.4 percent in FY21.

Cholamandalam Investment’s core business comprises commercial vehicle (CV) finance and loan against properties with almost half of its clients in low-income states and 80 percent being first-time buyers or drivers-turned-owners.

The Chennai-based NBFC managed assets worth Rs 59,292 crore as on September 30.

ICICI Securities feels that the government’s plan to introduce a scrappage policy that will incentivise truck owners to scrap their old trucks and buy new BS-VI compliant ones can potentially change the demand dynamics in favour of the CV OEMs and financiers.

The according to the brokerage, key themes for NBFCs in CY20 will be much improved ALM profiles and borrowing mix and better access to liquidity.

It expects the Partial Guarantee Scheme with the much-needed changes now approved by the Cabinet should accelerate the flow of funds to liquidity-starved NBFCs or HFCs.

The brokerage expects gradual improvement in both demand uptake and liquidity by mid-CY20 on the back of improvement in consumption resulting from all the policy or regulatory interventions made by the government and RBI in CY19.

This stock is ICICI Securities’ top pick among NBFCs for 2020

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