How are the finance companies in your investment portfolio performing? A review of second quarter! ICFC and Srijana Finance in the lead

The outreach of banking and financial services in Nepal is still lagging behind. Majority of the population are still restrained from the access of these services. Finance companies are therefore licensed by the central bank with an objective to provide different banking and financial services to the general public. Often, finance companies are not preferred by mutual funds in their investment portfolio. Experts also hold a viewpoint that the business model of finance companies are not clear since we have never heard a finance company being upgraded into development banks or degraded into microfinance company.  The consistent merger among finance companies or acquisition by commercial and development banks have also brought fluctuation in the number of these companies. However, Nepal Rastra Bank has realized the essence of finance companies in Nepal. As a result, NEPSE currently has 20 listed finance companies so far. If problematic institutions such as Nepal Finance, Nepal Share Markets and Finance Limited, Capital Merchant Banking and Finance, Crystal Finance will come into operation, the number will increase.

Thus, to facilitate the enthusiasts in the secondary market, the article has been prepared accumulating the analysis of all the finance companies with respect to their performance in 2nd quarter of fiscal year 2075/76 that can be useful for investment purpose. The industry average includes all the 20 finance companies. However, the performance of three companies (operating in 1 to 3 districts) has not been compared with the industry average.

Financial overview:

Paid up capital:

Among the national level finance companies, ICFC Finance Company (ICFC) has the highest paid up capital (Rs 88.22 crores), followed by Gurkhas Finance Limited (GUFL) (Rs 86.80 crore). Pokhara Finance Limited (PFL) is third position with capital Rs 85.73 crores.

Among the finance companies operating in 1 to 3 districts, Janaki Finance Limited (JFL) has the highest paid up capital of Rs 49.21 crores. It is further followed by Srijana Finance Company (SFFIL) with a paid up 46.08 crores. Finally, Multipurpose Finance Company (MPFL) has capital worth Rs 4.15 crore.

The national level finance companies are required to meet the paid up capital of Rs 80 crores while the finance companies operating in 1 to 3 districts are required to meet the paid up capital of Rs 40 crores. The problematic finance companies which have started their operation will have to meet the paid-up capital requirement by mid-July 2019. Those are HATH, CEFL, LFC, WMBF among the 20 companies mentioned above in the table. There are other problematic companies as well but are yet to come into operation.

Reserve and surplus:

In context of reserves and surplus, Gurkhas Finance Limited (GUFL) has highest reserve of Rs 34.94 crores, followed by Pokhara Finance Limited (PFL) with a reserve of Rs 29.02 crores. In the third place stands ICFC Finance Company (ICFC) with reserve worth Rs 27.41 crores. The industry average reserve is around Rs 9.08 crores and 10 companies are above the average.

Among finance companies, having their presence in 1 to 3 districts, Srijana Finance (SFFIL) has a reserve worth Rs 14.08 crores,  Janaki Finance Limited (JFL)  with reserve of Rs 20.94 crores and Multipurpose Finance Company (MPFL) with a reserve of Rs 2.73 crores.

 Net profit:

Among the finance companies, the second quarter report shows that ICFC Finance (ICFC) has earned the highest net profit of Rs 6.17 crores. It is further followed by Gurkhas Finance Limited (GUFL) with net profit of Rs 6.09 crores. Shree Investment Finance Limited (SIFC) is in the third position with net profit of Rs 5.77 crores. The industry average net profit of finance companies stands at Rs 2.49 crores with 9 companies above industry average.

Among the 1 to 3 districts finance companies, Srijana Finance Company (SFFIL) has a net profit of Rs 4.28 crores. Janaki Finance Limited (JFL) has a net profit of Rs 3.88 crores and Multipurpose Finance Company with a net profit of 36 lakhs.

 Deposit collection:

The national level finance companies have been trying their best to attract the deposit clients. As of the second quarter of FY 2075/76, ICFC Finance (ICFC) has established itself in the top list in deposit collection. It has a deposit worth Rs 9.02 arba. Similarly, the company is followed by Manjushree Finance Limited (MFIL) and Goodwill Finance (GFCL) with the collected deposit of Rs 6.40 arba and Rs 6.26 arba respectively. The industry average of deposit lies at Rs 3.41 arba with 8 companies standing above the par.

Among the finance company operating in 1 to 3 districts, Srijana Finance (SFFIL) has a deposit of Rs 5.99 arba, Janaki Finance (JFL) has deposits of Rs 1.86 arba and Multipurpose Finance (MPFL) has deposits of Rs 22.14 crores.

Loans and advances:

As shown by the figures, the positions in loans and advances are almost similar to deposit. The top three positions are occupied by ICFC Finance (ICFC), Manjushree Finance Limited (MFIL) and Goodwill Finance Limited (GFCL) with credit disbursement worth Rs 7.60 arba, 5.68 arba and Rs 5.37 arba. The industry average stands at Rs 3.06 arba with 8 companies that have disbursed credit above the industry average.

 Annualized EPS

With an industry average of Rs 5.50 in terms of EPS, eleven finance companies have been able to deliver an EPS that is above industry average.

The finance company that has won the race of annualized EPS is Shree Investment Finance Company Limited (SIFC). The company’s annualized EPS stands at Rs 14.24. Gurkhas Finance Limited (GUFL) has the second highest EPS that accounts to Rs 14.04. Finally, ICFC Finance Limited (ICFC) has an EPS of Rs 13.99 per share.

Among the finance companies operating in 1 to 3 districts, Srijana Finance (SFFIL) has the highest EPS of Rs 18.59 followed by Janaki Finance (JFL) with an EPS of Rs 15.76. In the third position, Multipurpose Finance Company (MPFL) have with an EPS of Rs 17.38.

 Net worth:

The industry net worth average is Rs 140.26 among the finance companies. 12 companies have net worth above average. Analyzing the net worth per share, Gurkhas Finance Limited (GUFL) has the highest net worth of Rs 140.26 followed by Pokhara Finance Limited (PFL) with net worth Rs 133.86. In the third place, we have Reliance Finance Limited (RLFL) with net worth per share of Rs 133.14.

Among finance companies operating in 1 to 3 districts, Multipurpose Finance Limited (MPFL) has a net worth of Rs 165.85, Janaki Finance Limited (JFL) has a net worth of Rs 142.55 and Srijana Finance (SFFIL) has the net worth per share of Rs 130.56.

P/E Ratio:

As per the general rule of thumb in finance, lower the P/E ratio, better the company. Considering it, the finance companies with the least P/E ratio are Gurkhas Finance Limited (GUFL) with P/E ratio of 7.26 times. Shree Investment & Finance Company Limited (SIFC) with P/E ratio of 9.24 times and ICFC Finance Company (ICFC) with P/E ratio of 10.51 times. 

Multipurpose Finance Company Limited (MPFL) has a P/E ratio of 8.46 times, Janaki Finance Company Limited (JFL) has a P/E ratio of 10.41 times and Shrijana Finance (SFFIL) has a P/E ratio of 11.67 times.

In a nutshell:

The full picture of finance companies is given in the following table:

Given the study on these finance companies, what strengths and opportunities do you think they have in the highly dominated banking industry? Which finance company would you prefer investing in? Please write in the comment section below.