Is the Stock Price Boom in Finance Sector Justified By Their Performance in Q4? An Elaborate Comparison of the Vital Fundamentals

Finance companies are licensed by the central bank with an objective to provide different banking and financial services to the general public since the outreach of the banking and financial services in Nepal is still lagging behind. Frequent mergers among finance companies or acquisitions by commercial and development banks have brought fluctuation in the number of these companies. However, Nepal Rastra Bank (NRB) has realized the essence of finance companies in Nepal. As a result, NEPSE currently has 15 listed companies so far. 

Thus, to facilitate the enthusiasts in the secondary market, the article has been prepared accumulating analysis of all the finance companies with respect to their performance in the fourth quarter of FY 2077/2078 that can be useful for investment purposes. The industry average includes all 15 finance companies. 

Financial Overview:

Net Profit:

In terms of Net Profit, Manjushree Finance Limited (MFIL) earned the most profit of Rs. 56.81 crores followed by Gurkhas Finance Limited (GUFL) and ICFC Finance Limited (ICFC) with Rs. 20.18 crores and 19.63 crores respectively.

On the other end, Samriddhi Finance Company Limited (SFCL) reported the lowest net profit of Rs. 45 lakhs from the sector.

Distributable Profit:

Manjushree Finance Limited (MFIL) reported the highest distributable profit of Rs. 48.56 crores. On the others side, 2 companies reported zero distributable profit. 

Net Interest Income:

In terms of Net Interest Income, Pokhara Finance Limited (PFL) earned Rs. 31.99 crores. Similarly, ICFC Finance Limited (ICFC) and Manjushree Finance Limited (MFIL) earned Rs. 30.39 crores and Rs. 28.11 crores respectively.

Paid-Up Capital:

Among all the companies, ICFC Finance Limited (ICFC) has the highest paid-up capital of Rs. 1.02 Arba followed by Manjushree Finance Limited (MFIL) and Pokhara Finance Limited (PFL) with Rs. 96.53 crores and Rs. 96.31 crores respectively.

*SFCL present paid up capital after recently sold unclaimed right share via auction process stand Rs 54.59 crore. 

Reserve and Surplus:

In terms of Reserve and surplus, Goodwill Finance Limited (GFCL) has the highest Reserve of Rs. 1.13 Arba. Similarly, Gurkhas Finance Limited (GUFL) has a reserve of Rs. 88.25 crores and ICFC Finance Limited (ICFC) has Rs. 54.46 crores in reserve.

(Note: Reserve and Surplus amount includes Share Premium, Retained Earnings, and Reserve)

Deposit from customers:

As of the fourth quarter of FY 2077/2078, ICFC Finance Limited (ICFC) has been able to collect the highest deposit from its customers of Rs. 15.19 Arba. Similarly, Goodwill Finance Limited (GFCL) has collected Rs. 10.08 Arba and Pokhara Finance Limited (PFL) has been able to collect Rs. 8.99 Arba in a deposit.

Loans and Advances:

In terms of Loans and advances, ICFC Finance Limited (ICFC) has provided loans and advances of Rs. 10.59 Arba followed by Goodwill Finance Limited (GFCL) and Manjushree Finance Limited (MFIL) of Rs. 7.38 Arba and Rs. 6.21 Arba respectively.

Earnings per share:

Since earnings per share (EPS) gives a great insight into the company, investors consider this metric as one of the important metrics while buying a stock.

As of the fourth quarter of FY 2077/2078, Manjushree Finance Limited (MFIL) has earned Rs. 58.85 per share followed by Gurkhas Finance Limited (GUFL) and Goodwill Finance Limited (GFCL) of Rs. 23.26 and Rs. 21.12 respectively.

Net worth per share:

As of the fourth quarter of FY 2077/2078, Goodwill Finance Limited (GFCL) has reported a Net worth per share of Rs. 230.52. Similarly, Gurkhas Finance Limited (GUFL) has reported a net worth per share of Rs. 201.67 and Manjushree Finance Limited (MFIL) of Rs. 179.53.

Price to Earnings ratio:

The price to Earnings (P/E) ratio tells investors how much the stock is selling for relative to its earnings. This indicator gives a clear picture of how much we are paying to get a rupee of earnings. So, lower the P/E better the deal.

While the P/E ratio tells us what we are paying for a rupee of earning, to know more about the company, investors have to dig into more metrics.

(NOTE: Since the ratio calculated below factored in the closing price of quarter end, Investors are requested to calculate the P/E ratio factoring in current market price.)

Non-Performing Loan:

Non-performing Loan gives investors and companies a wider picture of loan quality the company has been disbursing.

In the fourth quarter of FY 2077/2078, Guheshwori Merchant Banking and Finance Limited (GMFIL) reported the least NPL of 0.32%.

Nepal Finance Limited (NFS) reported the highest NPL of 44.82% in this quarter.

Note: GFCL has not published its NPL figure in the published report. 

Capital Adequacy Ratio:

In a nutshell:

Note: GFCL has not published its NPL figure in the published report. 

Conclusion:

Observing the numbers of all the published data signifies that the financial institutions have in fact improved their bottom line despite challenges posed by pandemics. On the contrary, the top line has somewhat remained stagnant or declined which is due to the lower interest environment. So, the question is what led to an improved bottom line when the top line was hampered? This is because financial institutions have earned significant amounts from other operating businesses and have improved the asset quality which led to a lower provision rate compared to the corresponding quarter of the previous year boosting the operating profit.

The concern for many investors might be the value they will be receiving if they were to buy the stock at the current price level. The stock prices for most of the finance companies have increased at a much higher rate compared to the last year. So, investors are requested to buy into the stocks once they find value at the current level of price since "PRICE is what you pay and VALUE is what you get".