Financials under pressure; Shriram Transport, AU SFB hit lower circuit

Shares of financial services companies, including non-banking financial companies (NBFCs), banks, housing finance and micro finance institutions (MFIs), were under pressure on Tuesday as the companies from these sectors have announced weak set of numbers for the January-March quarter (Q4FY20), largely due to the Covid-19 pandemic.

Shriram Transport Finance Company, Piramal Enterprises, Indiabulls Housing Finance, AU Small Finance Bank, MAS Financial Services, AAVAS Financiers, Karnataka Bank, JM Financial and Federal Bank were down in the range of 5 per cent to 10 per cent on the National Stock Exchange (NSE).

At 10:33 am, Nifty Financial Services, Nifty Bank and Nifty Private Bank indices were down 2.7 per cent each, as compared to 1.5 per cent decline in the Nifty 50 index.

Among individual stocks, Piramal Enterprises was down 10 per cent to Rs 839, after the company reported a consolidated pre-tax loss of Rs 1,296 crore in the March quarter, as opposed to a pre-tax profit of Rs 678 crore in the same period last financial year (Q4FY19) because of incremental provisioning in its financial services business on account of Covid-19. The company reported a net loss of Rs 1,703 crore in Q4FY20 compared to a net profit of Rs 455 crore in Q4FY19.

The company made provisions in the financial services business to the tune of Rs 2,963 crore in Q4FY20, up more than 200 per cent, which includes incremental provision of Rs 1,903 crore for Covid-19. The gross non-performing assets of the firm moved up to 2.4 per cent in Q4FY20, compared to 1.8 per cent in Q4FY19.

AU Small Finance Bank (SFB) was locked in 5 per cent lower circuit for the seven straighth day at Rs 380, also its 52-week low on the NSE. Thus far in the month of May, the stock has tanked 30 per cent, as the lender reported lower-than-expected net profit in Q4FY20 owing to the higher provisions created toward special mention accounts (SMA).

Of the assets under management (AUM), Rajasthan, Maharashtra, Gujarat and Delhi (with higher number of red zone areas) contribute nearly 74 per cent of the firm's AUM. Thus, analysts at Emkay Global Financial Services believe that the prolonged lockdown or limited activity, coupled with the bank’s otherwise high risk wheels and SME portfolio, could be exposed to higher asset-quality risk.

Shares of Shriram Transport Finance Company (STFCL), too, were locked in 10 per cent lower circuit at Rs 663. The stock has fallen 15 per cent in the past four trading days, after rating agency Crisil revised its outlook on the firm's long-term debt instruments, bank facilities and fixed deposit programme of the company to 'Negative' from 'Stable'.

CRISIL's belief that STFCL's collections and asset quality metrics are likely to come under pressure due to the extended nation-wide lockdown and challenging economic environment. The company largely caters to borrowers with modest credit profile and relatively under-banked customers. The borrowers of the company are primarily individual small road transport operators whose truck utilisation and income streams are more vulnerable to weak economic activity.

Any delay in return to normalcy will put further pressure on collections and asset quality metrics. However, with the expectation of higher slippages, ability to maintain credit costs in line with historical levels will be a key rating sensitivity factor, it said.