Sharp decline in incremental CoF to boost margins for NBFCs: Motilal Oswal
Dec 28, 2020
Mumbai (Maharashtra) [India], December 28 : There has been a sharp decline in incremental cost of market borrowings for non-banking finance companies (NBFCs) -- especially those with strong parentage -- over the past nine months, Motilal Oswal Financial Services said on Monday.
For example, BAF raised two-year funds at 4.7 per cent in December compared to over 7 per cent for three-year borrowings in February.
For HDFC, cost of long-term funds (five years) fell nearly 200 basis points to sub-6 per cent over the same period. Within vehicle financiers, MMFS has been the biggest beneficiary, with the cost of three-year borrowings declining by 250 basis points to 5.25 per cent in the past nine months.
Among larger NBFCs, while the cost of borrowing fell for Shriram Group entities, it still remains around 8 per cent.
While the cost of market borrowings has declined sharply, said Motilal, NBFCs have a lower share of market borrowings now as compared to two years ago. This is because post the IL&FS crisis companies meaningfully cut down their non-convertible debenture and commercial paper exposure.
These players focused on bank borrowings and alternative sources like sell-downs and external commercial borrowings to raise incremental money. Only four players -- HDFC, LICHF, BAF and LTFH -- still have over 40 per cent share of market borrowings.
Motilal said these players are likely to benefit more than others. Nevertheless, players with a higher share of bank borrowings will also benefit, albeit to a lesser extent, as banks have cut their marginal cost of lending by 80 to 90 basis points since February and some companies have moved to repo-linked borrowings from banks.
NBFCs with a niche presence and strong pricing power are likely to witness margin expansion. Reduction in excess liquidity on the balance sheet and benefit of capital raise for a few players will also aid margins, said Motilal.
