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While much has been assessed about the fate of microfinance lenders after the government’s move to ban certain old notes, stocks of vehicle financiers is another cluster within the NBFC space to witness an abrupt halt in their bull run. Stocks such as Shriram Transport, M&M Financial Services and Cholamandalam Investment and Finance, which until November 8 rewarded their investors with year-to-date gains of 23–77 per cent, have witnessed a massive reversal in trend. From November 8 till date, these stocks have ceded 14–27 per cent of their market value, while in the case of Shriram Transport, the year-to-date gains have been fully wiped off. But interestingly, even despite the steep correction, the Street’s scepticism on these stocks doesn’t seem to have vanished.
“While valuations have significantly corrected for most stocks, there is still more room for correction given the amount of earnings volatility ahead for them,” says Shweta Daptardar of KRC Research. Most analysts agree with Daptardar and affirm that as the vehicle finance industry tends to be more cash-intensive, unlike housing finance or infrastructure finance, it could take more time for companies to assess the impact of note ban on their business and recover from it. Also, as demonetisation has disrupted growth during an otherwise healthy period, to what extent the loan growth run rate is altered needs to be monitored. Until the September quarter, vehicle finance companies witnessed 20–23 per cent growth in its assets under management (AUM) and growth was expected to gather more momentum in the second half of FY17. Analysts believe that while pent-up demand and partial use of old notes could have arrested the plunge in AUMs during the Decemberquarter, the March quarter numbers would mirror the exact pain ahead of them. Analysts at ICICI Securities recently met with the top brass at M&M Financials.
Among some key observations made by the company, one that stands out is, “For the contracting and operator segment, business volumes have dropped drastically and one must keep in mind that unlike the farm income-based customer segment, there is no way for the customer to salvage missed earnings. Time lapsed without activity will obviously not come back.” So, for now, analysts say the vehicle financiers could perhaps be staring at flat asset growth for the next six months. Consequently, they are trimming down their AUM and top line growth estimates for FY17 by five-six per cent each, to 11-12 per cent and 15 per cent, respectively. The trimming for FY18 numbers has been to the extent of two–three per cent, but could increase once clarity emerges in the December quarter numbers. This is why a majority of experts feels that the coming days could offer more room for bottom-fishing in case of vehicle finance stocks. “While structurally each of the businesses offer value for investors, wait-and-watch stance could help investors benefit more,” Daptardar concludes.
