Best NBFC Stocks in India: Non-Banking Financial Institutions or NBFCs for short are Companies that almost function like a bank. They are free to lend to the public as well as borrow from the financial markets. However, when it comes to borrowing, a Bank is allowed to accept deposits from the public, whereas an NBFC cannot.
NBFCs tend to be smaller in size as compared to banks, but they can have their specific niches, like a specific segment that they would lend to. Due to this specific focus & area of expertise, they take a bit more risk than banks commanding higher returns for the risk taken.
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Best NBFC Stocks in India
So that is a brief about what these NBFCs are. In this article on Best NBFC Stocks in India, we take a look at some of the lending giants, their statistics, size of their business.
Best NBFC Stocks in India #1 – Bajaj Finance
Bajaj Finance is one of India’s most diversified Financial Services Company, with a Market cap of over Rs. 4.5 Lakh Cr. The Company has a massive presence in India with over 3733 branches catering to over 6.9 Cr customers.
Bajaj Finance is the subsidiary Company of the parent Bajaj Finserve, which owns a 52.49% stake in the Company. Bajaj Finance is the parent of Bajaj Housing Finance & Bajaj Financial Securities Ltd, which are the wholly owned subsidiaries of Bajaj Finance.
Moreover, Snapwork Technologies Pvt Ltd, which provides software products to Bajaj Finance is an Associate Company of Bajaj Finance. During the year, Bajaj Finance successfully added over 1.16 Cr new customers. Its technological platform enabled 3.5 Cr people to use its digital app platform.
The Company offers a host of credit products & services such as Consumer Lending, Personal Loans, Loan Against Securities, SME Lending, Commercial Lending, and a lot of other services.
Bajaj Finance increased its loan book by over 2.96 Cr accounts, increasing by 20% over the previous year. The Company currently has about Rs. 2.47 Lakh Cr worth of Assets Under Management (AUM), which grew by 29% from the previous year.
The NBFC’s Net Interest Income grew from Rs. 21,892 Cr to Rs. 28,846 Cr in FY23, growing by over 32%, with no impact on Net Interest Margins as per Company filings. Net Profits saw an aggressive jump of 64%, from Rs. 7028 Cr in FY22 to Rs. 11508 Cr in FY23. This was possible as its expenses grew only by 17%, compared to the exponential growth in revenue.
| Particulars | Amount | Particulars | Amount |
|---|---|---|---|
| CMP | ₹7,096.95 | Market Cap (Cr.) | ₹4,40,635 |
| EPS | ₹23.92 | Stock P/E | 34.4 |
| RoE (%) | 23.50% | RoA (%) | 5.30% |
| Promoter Holding (%) | 55.90% | FII Holding (%) | 20.40% |
| GNPA (%) | 0.94% | Price to Book Value | 7.58 |
| Assets Under Management (AUM) | ₹2,47,379.00 | Net Profit Margins (%) | 27.80% |
Best NBFC Stocks in India #2 – Cholamandalam Investment & Finance
Cholamandalam Investment and Finance Company Limited (also known as Chola), was incorporated in 1978 as the financial services arm of the Murugappa Group. Chola commenced business as an equipment financing company which has now transformed into a comprehensive financial service provider.
The NBFC operates out of 1204 branches across India with Rs. 1.12 Lakh Cr worth of Assets under Management (AUM), which grew by 36% from Rs. 82,904 Cr in FY22. At the same time, the Company aggressively scaled up disbursements by 87%, from Rs. 35.490 in FY22 to Rs. 66,532in FY23.
It offers vehicle finance, home loans, loans against property, SME loans, secured business personal loans (SBPL), consumer & small enterprises loans (CSEL), and a variety of other financial services to customers.
Apart from the lending businesses, the Company also runs a used vehicle marketplace, specialized for commercial vehicles, called Gaadi Baazar. The platform has 7000+ sellers, 9000+ bidders, and over 6 lakh listings on its platform. The platform is also optimized to cross-sell vehicle loans to individuals looking to purchase vehicles.
Chola’s Vehicle Finance business is its largest segment with assets worth Rs. 66,938 Cr in management, about 63% of the Company’s total assets. This is followed by Loan Against Property, which included 20% of the Company’s total assets. The segment grew by 29%. The Home Loan segment is the 3rd largest segment with assets worth Rs. 8451 Cr under management.
The NBFC’s Net Interest Income increased from Rs. 5840 Cr in FY22 to Rs. 7229 Cr in FY23, increasing by 23.8%. Profits also increased by 24%, from Rs. 2159 Cr in FY22 to Rs. 2677 Cr in FY23.
| Particulars | Amount | Particulars | Amount |
|---|---|---|---|
| CMP | ₹1,105.4 | Market Cap (Cr.) | ₹93,146 |
| EPS | ₹32.44 | Stock P/E | 31.8 |
| RoE (%) | 20.60% | RoA (%) | 3.80% |
| Promoter Holding (%) | 51.40% | FII Holding (%) | 21.50% |
| GNPA (%) | 4.6% | Price to Book Value | 5.89 |
| Net Interest Margins (%) | 7.70% | Net Profit Margins (%) | 20.70% |
Best NBFC Stocks in India #3 – IRFC
Indian Railway Finance Corporation is not a traditional NBFC as the Company was set up back in 1986 with a single purpose. IRFC is the dedicated financing arm of the Indian Railways for mobilizing funds from domestic as well as overseas Capital Markets.
The Company is a Public Sector Enterprise under the administrative control of the Ministry of Railways, Govt. of India. The primary objective of IRFC is to meet the ‘Extra Budgetary Resources’ (EBR) requirement of the Indian Railways by borrowing from the market at competitive rates.
It borrows these funds which are required to finance the acquisition/creation of assets which are then leased out to the Indian Railways. As of FY23, IRFC’s cumulative funding to the rail sector has crossed Rs. 5.04 lakh Cr. The funds are utilized for acquiring rolling stock assets (Trains) and building up rail infrastructure.
So far, IRFC has funded 13,764 locomotives, 76,735 passenger coaches, and 2,65,815 wagons, which constitute around 75% of the total rolling stock fleet of Indian Railways. From 2011-12 onwards, IRFC has forayed into funding railway projects and capacity enhancement works.
IRFC has also been lending to various entities in the Railway sector like Rail Vikas Nigam Limited (RVNL), Railtel, Konkan Railway Corporation Limited (KRCL), Pipavav Railway Corporation Limited (PRCL) etc.
IRFC earned 68% of its revenue as Lease Income amounting to Rs. 16,344 Cr. It earned an interest Income of about 7547 Cr, contributing to 32% of its revenue. The Company increased its Profitability by a marginal 4%, increasing from Rs. 6089Cr in FY22 to Rs. 6337 Cr in FY23.
| Particulars | Amount | Particulars | Amount |
|---|---|---|---|
| CMP | ₹74.5 | Market Cap (Cr.) | 98,366 |
| EPS | ₹4.85 | Stock P/E | 16.2 |
| RoE (%) | 14.66% | RoA (%) | 1.35% |
| Promoter Holding (%) | 86.40% | FII Holding (%) | 1.14% |
| GNPA (%) | 0.0% | Price to Book Value | 2.12 |
| Net Interest Margins (%) | 1.42% | Net Profit Margins (%) | 26.52% |
Best NBFC Stocks in India #4 – Shriram Finance
Shriram Finance was established in 1979 by R. Thyagarajan, A.V.S Raja, and T. Jayaraman. This Non-Banking Financial Company (NBFC) predominantly provides Hire purchase Financing for Trucks, Passenger vehicles, and other commercial vehicles.
The Company also finances construction equipment, farm equipment, MSMEs, gold loans, personal loans & working capital loans.
Shriram City Union Finance Limited (SCUF), Shriram Capital Limited (SCL), and Shriram Transport Finance Company Limited (STFC), all three entities amalgamated to form Shriram Finance Ltd.
Today, it is one of India’s largest retail NBFCs with 1.85Lakh Cr worth of Assets under Management, with a vast customer base of 73.24 Lakh individuals. It operates with around 2922 branches spread across the country, run by 64,052 employees.
Due to the above-mentioned amalgamation, Interest Income of Shriram Finance Ltd increased by 62% from Rs. 18,646Cr in FY22 to Rs. 29,206Cr in FY23. Net Profit Increased at an even greater rate, from Rs. 2,721 in FY22 to Rs. 6,020Cr, a solid growth of 107%.
As of FY23, the Company reported Net Interest Margins of 8.37% and Return on Assets of 2.89%. The stock currently trades at a PE ratio of 11.3x with a Price-Book Value of 1.58x.
| Particulars | Amount | Particulars | Amount |
|---|---|---|---|
| CMP | ₹1,989.35 | Market Cap (Cr.) | ₹74,163 |
| EPS | ₹159.69 | Stock P/E | 11.3 |
| RoE (%) | 14.84% | RoA (%) | 2.89% |
| Promoter Holding (%) | 25% | FII Holding (%) | 55.36% |
| GNPA (%) | 7.07% | Price to Book Value | 1.58 |
| Net Interest Margins (%) | 8.37% | Net Profit Margins (%) | 19.80% |
Best NBFC Stocks in India #5 – SBI Cards & Payments
SBI Cards & Payments Ltd is India’s 2nd largest credit card issuer, with 1.68 Cr cards in Force (CIF) & 18.2% market share in credit spending. The Credit card issuer started its journey in 1998. Initially, it was owned by the State Bank of India and GE Capital (Financial Services arm of General Electric).
In December 2017, the State Bank of India and The Carlyle Group acquired GE Capital`s stake in SBI Card. In March 2020, SBI Card became the first pure-play credit card company to list on the stock exchanges in India. A title it continues to retain to date.
SBI Cards specializes in Co-Branded credit cards, launching its first Co-Branded card with IRCTC & Tata in 2006. In 2021, SBI Cards launched AURUM in the super-premium segment, to target Ultra High Net worth customers. The card issuer added over 52.02 Lakh accounts in a year.
As of FY23, customers of SBI Card spent a sum of Rs. 2.62 Lakh Cr on their credit cards. An Average consumer spent about Rs. 1.74 Lakh annually, which has increased from 1.42 Lakh in annual spending in FY19.
The NBFC had a bit of a problem with its Non-Performing Assets (NPAs), which peaked at about 4.99% in FY21. However, this could be treated as a black swan event occurring due to the COVID-19 Pandemic. The Company is back to maintaining its NPAs at the 2% level.
SBI Cards earns most of its revenue from Interest Income (48%) and fee & commission (48%). The NBFC collectively earned Rs. 12,757 Cr from the above sources. During FY23, its Net Profits climbed by over 40% in a year, from Rs. 1616 Cr in FY22 to Rs. 2258 Cr in FY23.
| Particulars | Amount | Particulars | Amount |
|---|---|---|---|
| CMP | 740 | Market Cap (Cr.) | 70,107 |
| EPS | ₹23.92 | Stock P/E | 31 |
| RoE (%) | 25.30% | RoA (%) | 5.60% |
| Promoter Holding (%) | 69% | FII Holding (%) | 9.08% |
| GNPA (%) | 2.35% | Price to Book Value | 6.36 |
| Net Interest Margins (%) | 12.10% | Net Profit Margins (%) | 16.50% |
List of Best NBFC Stocks in India
The list below puts together 10 Best NBFC Stocks in India
| Name | CMP | Mkt Cap | ROA (%) |
|---|---|---|---|
| Bajaj Finance | 7,101.5 | ₹4,40,635 | 5.30% |
| Cholamandalam Inv & Finance | ₹1,103.9 | ₹93,146 | 3.80% |
| IRFC | ₹74.5 | ₹98,366 | 1.35% |
| Shriram Finance | ₹1,990 | ₹74,163 | 2.89% |
| SBI Cards & Payments | ₹740 | ₹70,107 | 5.60% |
| Muthoot Finance | ₹1,435.2 | ₹56,804 | 4.85% |
| Aditya Birla Capital | ₹175.00 | ₹45,555.00 | 3% |
| Sundaram Finance | ₹3,276.00 | ₹36,392.00 | 2.87% |
| M&M Financial Services | ₹267.00 | ₹32,990.00 | 2.23% |
| CreditAccess Grameen | ₹1,660.00 | ₹26,400.00 | 4.20% |
Conclusion
We finally reach the end of our article hoping that you have better understood India’s best NBFCs. Some of these NBFCs do provide lucrative returns to investors with the ROEs ranging from 15%-25%. However, Investors must be cautious about their NPAs. As these are not Banks, their risk appetite is a lot higher as compared to Banks.
Even though these companies are reporting high ROEs currently, the situation can change if NPAs begin to mount. The NBFCs will then be required to keep aside hefty profits to write off these Non-Performing Assets. Hence, Investors must look for the perfect balance of high ROE, and low GNPAs at lower valuations (P/E).
Which of these NBFCs is your favorite & why? Let us know in the comments below.
Written By Nasir Hussain
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