Which is the best NBFCs stock? Here is a detailed comparison of the Top 5 NBFCs on 18 different quantitative parameters based on Q3 FY22 results.
Please note that we have done this analysis with the only purpose of screening good companies. Analysis done is completely on a quantitative basis. No suggestions are being made to directly go and invest in the top-scoring companies of this analysis. We suggest that one should perform a qualitative analysis of top-scoring companies in this analysis and take investment decisions based on risk profile.
NBFC Sector Quantitative Analysis
Companies selected for Analysis:
We have selected the following five NBFC companies for our Quantitative Analysis.
Market Capitalization of 5 NBFCs Stocks (Rs. Cr): (As of 11th March 2022)
- Bajaj Finance- Rs. 4 Lakh Cr.
- SBI Cards and Payment Services- Rs.76,041 Cr
- Muthoot Finance- Rs.55,540 Cr
- Cholamandalam Investment & Finance Company- Rs.55,105 Cr
- Shriram Transport Finance Company- Rs. 29,522 Cr.
The procedure of Analysis and its Interpretation
- These 5 Companies are analyzed on the following 21 parameters and ranked and scored accordingly. For example, a company with a higher PE ratio is provided with a lower rank, hence has scored lesser points. Similarly, if a company has higher RoE, it has a higher rank and has scored higher points.
- Here, 1 means that the company has scored the lowest points and 5 means the company has scored the highest points.
- In the end, we have added all the points together and companies are ranked accordingly.
Parameters of Quantitative Analysis:
1. PE Ratio:
Top 5 NBFC Companies- PE
- PE of a company means how much investors should pay for the stock based on their current earnings. A company with a lower PE Ratio is considered to be undervalued and has a huge potential to unlock its value. Hence, full points will be rewarded to that company.
- With the lowest PE Ratio of 12.35, Shriram Transport Finance Company gets the first position and 5 points. And Bajaj Finance with the highest PE of 67.17 among peers is awarded 1 point only.
2) P/B Ratio:
Top-5 NBFCs- PB Ratio
- P/B ratio or Price-to-Book Ratio is an important valuation ratio that evaluates whether a company’s stock is overvalued or undervalued by comparing the price of all outstanding ratios with the net assets of the company.
- It can be calculated by the following formula: Current Market Price of a Stock/ Book Value per share.
- Companies with lower P/B ratios are considered better and vice versa.
- In this case, Shriram Transport Finance Company grabs the first position with a PB ratio of 1.15. After Shriram Transport Finance Company, the lowest PB ratio is of Muthoot Finance of 3.13 and hence given 2nd rank and 4 points.
- Here also, SBI Cards and Payment Services is awarded the last position for possessing the highest PB ratio of 10.31 among all other mentioned NBFCs.
3) Return on Equity (RoE):
Top-5 Private Bank- Return on Equity (ROE)
- Return on Equity (RoE) is another most common ratio used in fundamental analysis. We can calculate RoE by the following formula: Net Income/ Total Shareholder’s equity (Equity share capital + Reserves/Surplus).
- RoE signifies how well the company generates the return on shareholders’ investment.
- Here also, the company with higher RoE is considered to be strong and vice versa.
- Muthoot Finance is providing the highest return on equity of 24.2% and hence is rewarded with first position and full points as well.
- SBI Cards and Payment Services has the second-highest RoE of 18.2% after Muthoot Finance.
- In this scenario, Shriram Transport Finance Company has performed the worst and is having an ROE of 10.2%, thereby have done ranking and scoring accordingly.
4) Return on Asset (RoA):
Top-5 NBFCs- Return on Assets (ROA)
- RoA simply indicated how well the company can generate profits from its assets.
- The formula for calculating RoA: Net Income + Total Assets
- In the case of Banking & NBFC Institutions, Loans are the assets of these institutions and hence profit generated via interests, etc. by banks & NBFC are referred to as Return on Asset.
- Like RoE, the higher the RoA of a company, the stronger its positions and vice versa.
- Here, Muthoot Finance outperforms all other NBFCs by maintaining an RoA of 7.49% and grabs the first position as well.
- The second-best RoA among the top-5 NBFCs is Bajaj Finance of 5.10%.
- The last position and lowest points among all the NBFCs are awarded to Shriram Transport Finance Company for maintaining an RoA of just 1.30%.
5) Sales & Net Profit Growth 5 Years CAGR:
Top-5 NBFCs- Sales & Net Profit Growth 5 Years CAGR
- In terms of Sales Growth, SBI Cards and Payment Services has registered the highest sales growth based on 5 years CAGR of 31.2% and hence given full points and first position.
- While Bajaj Finance with 26.4% and Cholamandalam Investment & Finance Company with 17.8% sales growth on 5 years CAGR basis have obtained 2nd and 3rd position respectively.
- Coming next to Profit Growth based on 5 years CAGR basis, then Muthoot Finance has delivered the maximum profit of 35.7% among all others and hence received full points and the first rank as well.
- SBI Cards and Payment Services manages to safeguard the second position with Profit Growth based on 5 years CAGR of 28.2%. Bajaj Finance with profit growth of 25.3% receives 3 points and 3rd position as well.
- Shriram Transport Finance Company with profit growth of 16.1% got the least marks and the last position as well.
6) Sales & Net Profit Growth 3 Years CAGR:
Top-5 NBFCs- Sales & Net Profit Growth 3 Years CAGR
- In the context of Sales Growth of Top-5 NBFCs based on 3 years CAGR, Bajaj Finance has grabbed the first position with 23% sales growth.
- Next to Bajaj Finance are SBI Cards and Payment Services, Cholamandalam Investment & Finance Company, Muthoot Finance, and Shriram Transport Finance Company with Sales growth of 21.4%, 20.2%, 19%, and 9.4% respectively.
- Talking about the profit growth of Top-5 NBFCs based on 3 years CAGR, Muthoot Finance has registered the lowest Profit Growth of 27.9% in the last 3 Years and hence ranked last.
- In the same period, Shriram Transport Finance Company has reported profit growth of 0.4% and obtained a second position.
7) Asset Under Management (AUM):
Top-5 NBFCs- Net Interest Income as a % of Operating Income
- Bajaj Finance has reported the highest Assets Under Management (AUM) of Rs. 1,81,250 Cr. and hence gets a full point and the first rank.
- Next to Bajaj Finance is Shriram Transport Finance Company which is having AUM of Rs. 1.24 Lakh Cr. Here, SBI Cards and Payment Services is having the lowest AUM of Rs. 27,969 Cr. and hence gets only 1 point.
8) Net Interest Income as a % of Operating Income:
Top-5 NBFCs- Net Interest Income as a % of Operating Income
- It reflects the earnings of the bank from its core operations. Net Interest Income refers to the difference between the Interest Earned and Interest Expenditure.
- The more the Net Interest Income for a bank, the better it is for a bank and vice versa.
- Cholamandalam Investment & Finance Company with the highest Net Interest Income as a % of Operating Income of 99.99% has been awarded 5 points and first rank.
- Bajaj Finance with 99.96% NII as a % of Operating Income receives the second position.
- The lowest marks and last position is scored by SBI Cards and Payment Services with 66.9% NII as a % of Operating Income.
9) Retail Loan Book %:
Top-5 NBFCs- Retail Loan Book %
- Higher Retail Loan Book % of the bank shows how much the bank is Retail Oriented.
- Muthoot Finance is in the number one position with the highest retail loan book of 99.1% among all other players.
- After Muthoot Finance, Shriram Transport Finance Company and Cholamandalam Investment & Finance Company have the highest share of the retail loan in their loan book of 97% and 91.4% respectively, and hence they are ranked and scored accordingly.
- Bajaj Finance has the lowest retail loan of 74% and hence is ranked last and given only 1 point.
10) Gross NPA:
Top-5 NBFCs- Gross NPA
- Shriram Transport Finance Company is having the highest Gross NPA of 7.62% among all other concerned players in the list and hence receives fifth rank and one point only.
- Bajaj Finance has the lowest Gross NPA among all of only 1.73% and hence given full points.
11) Net NPA:
Top-5 NBFCs- Net NPA
- In terms of Net NPA, Shriram Transport Finance Company has the highest Net NPA of 0.91% and hence received 1 point and fifth position.
- While Bajaj Finance with the lowest Net NPA of 0.78% tops the list.
12) Provision Coverage Ratio (PCR):
Top-5 NBFCs- Provision Coverage Ratio
- SBI Cards and Payment Services has made the highest provision of 65.9% in these 5 NBFCs and therefore given 5 points and first rank.
- Bajaj Finance with a Provision Coverage Ratio of 56% is ranked second respectively.
- Whereas Muthoot Finance has the lowest Provision Coverage Ratio of 10.60% and hence given 1 point and 5th rank.
13) Net Interest Margin:
Top-5 NBFCs- Net Interest Margin (%)
- In this context, SBI Cards and Payment Services overperforms other NBFCs and tops the list with the highest Net Interest Margin of 14% among these NBFCs.
- Shriram Transport Finance has the lowest Net Interest Margin of 6.65% and hence receives only one point and last rank.
14) Cost to Income Ratio:
Top-5 NBFCs- Cost to Income Ratio
- Overall, Cost to Income can be considered as a performance ratio that presents the cost incurred for generating income.
- The lower the Cost to Income ratio, the better it is and vice versa.
- Shriram Transport Finance Company has reported the lowest Cost to Income Ratio of 19.7% and hence ranked first.
- SBI Cards and Payment Services has the highest Cost to Income Ratio of 52.6% and therefore ranked and scored accordingly.
15) Capital Adequacy Ratio:
Top-5 NBFCs- Capital Adequacy Ratio
- Ideally, the Capital Adequacy Ratio of the bank should be a big number.
- Here, Muthoot Finance outscores others by reporting the highest Capital Adequacy Ratio of 29.9% among all others and grabs the first position as well as full points.
- Cholamandalam Investment & Finance Company with a Capital Adequacy Ratio of 19.8% is given fifth rank and 1 point.
- Bajaj Finance has the Capital Adequacy Ratio of 27% and is hence marked and ranked accordingly.
16) Franchise- Number of Branches: