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kulman
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Joined: 02/Sep/2006
Location: India
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   Posted: 17/Dec/2007 at 10:32am |
In Bizlish, not everything is hunky dory!
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In the recent past, the consumer finance arm of General Electric has either shut down or pruned a string of businesses like car loans, two-wheeler loans and consumer durables financing. There is a growing buzz that GE will restructure its consumer finance operations in India, sell off some of its assets and rope in new partners.
What has deepened the speculation is a statement by GE chairman & CEO Jeff Immelt put up on the company's website: “...We've got assets outside the US that we could monetise in 2008. Tthere's going to be capital redeployment opportunities from GE Money into Commercial Finance.”
The statement comes at a time when GE Money in India is grappling with plummeting profits. The firm, an unlisted non-banking finance company, saw its profits decline to Rs 10 crore for the year ended March 31, 2007 as against Rs 50 crore in the previous fiscal. Rating agency Crisil has said the company's earnings profile are constrained by high operating costs and average asset quality.
One of our key successes in the Indian market has been our partnership strategy with strong brands such as SBI. With our investment in Wizard Home Loans and our MoU with LIC, we are optimistic about our long-term growth plans in India. Given that India is an investment market for GE Money, we will continue to look at growth opportunities here.”
However, some of these partnerships have not generated the desired results. While the JV with LIC has been delayed, there has been a sharp rise in provisions/write-offs of SBI Cards and Payment Services (SBICPSL) — a JV with the State Bank of India.
Unlike some of the other overseas players, GE Money has been slow on branch expansion.
GE Money Housing Finance (GEMHF), a wholly-owned arm of GE Capital, suffers from thin margins, with a very low spread of 1.3 percentage points, said Crisil. Rising interest rates have impacted retail assets of several finance companies, causing higher delinquencies.
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Life can only be understood backwards—but it must be lived forwards
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basant
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Joined: 01/Jan/2006
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Posted: 17/Dec/2007 at 11:09am |
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Many of these NBFC trading at fancy price to book valuations should get ready for a jolt in their mkt cap.
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'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
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s_praharaj
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Joined: 10/Sep/2006
Location: India
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Posted: 20/Dec/2007 at 7:01pm |
During Harshad Mehta's time, these NBFCs were trading at a very high price. Many new NBFCs were floated, which were trade at a fancy price.
That is the reason I am always Skeptical about the NBFCs. When NBFCs go to dizzy heights, I feel, the bad times are ahead.
I had a stock called Gujarat Lease Finance Ltd. I was allotted 100 shares in 1987 at 10 rupees. The price after HM time came down to around 1 rupee. The management restructured the capital and alotted me 25 shares in place of 100. After that alos the price came down to 2 rupees. I almost forgot the share.
I find for last few days it is always in upper circuit. It closed at 15.26 paise today. It reminds me of those days. Now also NBFC are quoted at high price. Time to be cautious.
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Shashi Praharaj
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xbox
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Joined: 10/Sep/2006
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Posted: 20/Dec/2007 at 4:41am |
Well, your write-up is completely true. NBFCs will be at the top of the bull. So it does not matter if bull is named INTERNET or infrastructure, NBFCs will ride on top of it. Now let's talk on vulnerability of NBFCs after crash....well, if one search in listed companies almost 50% of those are NBFCs and most of the Z grade companies are NBFCs. Gujarat Lease Finance could be one such example. We must remember for every one INFY there are 10 silverlines & for every one HDFC there are 1000 gujarat Lease finance. I lost a lot of money in silverline in Yr 2000 but is it sufficient to blame INFY or the sector itself ? probably not....Similar case do exist to almost all other sectors.
Here I am trying to find those NBFCs which are in lending segment, insurance advisory, 3rd party product distribution etc and which are sharing lending space with Banks. When Banks can grow that 30-40% CAGR, I can't see why such NBFC can't outperform Banking sector growth rate ?
If sector is selected properly but company is not then timing is the key otherwise timing is no issue at all.
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Don't bet on pig after all bull & bear in circle.
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aloksahi1971
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Joined: 20/Aug/2007
Location: India
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Posts: 390
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Posted: 20/Dec/2007 at 10:36am |
Mr Bindra heading the Ge Finance set up here is a school senior he has moved here from STandard Charterd Bank in spite of being a director for SE asia.There must be bullishnes to quit such acushy job to take a new challenge!!!
He personaly was very bullish on the Media and Ent sector at the last meet.
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deveshkayal
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Posted: 02/Jan/2008 at 10:21am |
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Will be interesting to see the P/BV of Future Capital Consumer Finance business. If it is on the higher side, then RCap, IBulls, IInfoline, etc can be have more upside.
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"You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beat the guy with a 130 IQ. Rationality is essential"- Warren Buffett
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s_praharaj
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Joined: 10/Sep/2006
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Posted: 03/Jan/2008 at 12:05pm |
NBFCs are quite different from Banks. The only similarity in both is that both of them lend. The source of money is cheap for Banks, as they are allowed to take deposits from the public. NBFCs now a days depend mostly on Banks for finance. If there is a good borrower, now-a-days he can get finance from Banks immly. NBFCs target those kind of borrowers, who either because of their illiteracy, accessability to Banks or poor creditworthiness are not getting loans from Bank. These kinds of customers are risky and are potential NPAs. Because of delay in Banks while sanctioning loans, the NBFCs also get some good business in certain segments like vehicle financing. But all of them are high risk loans.
The NBFCs which are having diversified business and having strong managements can hope to succeed, but they are very few. Foreign born NBFCs have also cheap source of funds from abroad, and so have better margins. The rules for NBFCs also are very stringent and so makes it very risky in the long run.
There are some NBFCs, which concentrate on single sctors like auto or housing finance. Among them housing finance companies are betterplaced, as housing sector is taken as a priority sector by the Govt and they get funds at a cheaper rate. Even many international funds at a concession rate also available to them for housing. Banks also finance them at a lower rate of interest, as this is taken under priority secor advance. Here they have a good chance of profit and the reason why housing finance companies do well. Moreover the mortage of house as a security is also a good security.
So NBFCs, which concentrate on only housing finance, have very good management and have access to foreign funds may do well. Otherwise they just mushroom, when the economy booms and fades away very early also.
Edited by s_praharaj - 03/Jan/2008 at 12:10pm
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Shashi Praharaj
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johnnybravo
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Joined: 17/Jan/2007
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Posted: 03/Jan/2008 at 4:45pm |
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* Thanks s_praharaj for this post. Are there any side-businesses which NBFC's can do and banks cannot, something like MF distribution, portofolio mgmt (these are just examples, might not hold true)
* Also how high are the loans charged by NBFC's as compared to banks. Since these loans are risky, they surely might attract higher premiums.
* Usually loans are against co-laterals (as far as i understand) so isn't the risk somewhat protected
* NBFC - can they be subjected to RBI dikkat - NPA warnings and etc stuff.
* Do NBFC's publically disclose their NPA's?
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