Stocks to buy: Five NBFCs beat sector gloom, clock over 50% returns; Aavas tops at 117%

ET Intelligence Group: Stocks of five non-banking finance companies (NBFCs) rose by 50 per cent or more in 2019 defying turbulent times for the sector amid liquidity crunch and asset quality issues. The list is dominated by micro and SME (small and medium enterprises) lenders who demonstrated better loan growth and greater control over asset quality.

According to an analysis by the ET Intelligence Group, 17 out of the 48 NBFCs each having market capitalisation of at least Rs 1,000 crore as on December 24 outperformed the returns of 13.6 per cent and 16 per cent posted by the benchmarks Nifty 50 and S&P BSE Sensex respectively in 2019.

With a return of 117 per cent, Aavas Financiers, a housing loan provider, topped the chart. It reported a 41.9 per cent year-on-year increase in the assets under management (AUM) in the September 2019 quarter with gross non-performing assets (NPA) ratio of 0.6 per cent. The stock trades at a steeper pricebook (P/B) multiple of 7.4.

CreditAccess Grameen, a microfinance company, was second in line with 100.8 per cent return. It reported 12.1 per cent net interest margin (NIM), and 0.5 per cent gross non-performing assets (NPA). The stock trades at a P/B of 4.3.

Gold loan provider Manappuram Finance came in third with 86 per cent stock return. Rising prices of the precious metal augured well for the company. Gold prices shot up by 18 per cent in 2019 amid uncertainties surrounding the global economic growth and trade talks between China and the US. The company’s AUM rose by 31.9 per cent year-on-year to Rs 22,676.9 crore in the September 2019 quarter with gross NPA of 0.6 per cent. The stock trades at P/B of 2.9.

Bajaj Finance, the second largest NBFC based on the market cap, earned 56.7 per cent return in 2019. Its AUM grew by 38.2 per cent to Rs 1,35,533 crore as of September 2019s with gross NPA at 1.6 per cent. The stock is available at a steep P/B of 11.6. According to some analysts, its FY21 expected P/B is around 6.1 implying a strong business momentum in the coming quarters.

The fifth stock to make it on the list is Capri Global, a Mumbai-based finance company with AUM of Rs 3,957 crore as of September 2019. It gained 56.4 per cent in 2019 till December 24. Capri provides loans to micro, small and medium enterprises (MSME), housing and housing construction segments. At 2.3 per cent, its gross NPA in the September 2019 quarter was on a higher side due to the sharp NPA of 3.9 per cent in the MSME division. The stock trades at a P/B of 2.4.