Which finance company's share would you like to purchase? Make your investment decision with this comparative analysis

The outreach of banking and financial services in Nepal is still lagging behind. Majority of the population is 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. Frequent merger among finance companies or acquisition by commercial and development banks have 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. However, Jebils Finance Company is in the process of acquisition by Nepal Investment Bank Limited. Also, Hathway Finance Limited will be acquired by Global IME Bank Limited. 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 third quarter of fiscal year 2075/76 that can be useful for investment purpose. The industry average includes all the 19 finance companies.

Financial overview:

Paid up capital:

Among the national level finance companies, United Finance Limited (UL) has the highest paid up capital (Rs 1.01 arba), followed by ICFC Finance Company (ICFC) (Rs 88.22 crore). Gurkhas Finance Limited (GUFL) is in third position with capital Rs 86.80 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 19 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, United Finance Limited (UFL) has highest reserve of Rs 42.19 crores, followed by Gurkhas Finance Limited (GUFL) with a reserve of Rs 35.20 crores. In the third place stands Pokhara Finance Limited (PFL) with reserve worth Rs 31.20crores. The industry average reserve is around Rs 12.05 crores.

Among finance companies, having their presence in 1 to 3 districts, Janaki Finance Limited (JFL)  has a reserve worth Rs 22.75 crores,  Srijana Finance (SFFIL)  with reserve of Rs 16.71 crores and Multipurpose Finance Company (MPFL) with a reserve of Rs 2.73 crores.

 Net profit:

Among the finance companies, the third quarter report shows that Shree Investment Finance Limited (SIFC) has earned the highest net profit of Rs 9.75 crores. It is further followed by ICFC Finance (ICFC) with net profit of Rs 9.55 crores. Best Finance Company (BFC) is in the third position with net profit of Rs 7.73 crores. The industry average net profit of finance companies stands at Rs 4.12 crores.

Among the 1 to 3 districts finance companies, Srijana Finance Company (SFFIL) has a net profit of Rs 6.91 crores. Janaki Finance Limited (JFL) has a net profit of Rs 5.68 crores and Multipurpose Finance Company (MPFL) with a net profit of 25 lakhs.

 Deposit collection:

The national level finance companies have been trying their best to attract the deposit clients. As of the third quarter of FY 2075/76, ICFC Finance (ICFC) has established itself in the top list in deposit collection. It has a deposit worth Rs 9.85 arba. Similarly, the company is followed by Goodwill Finance (GFCL) and Manjushree Finance Limited (MFIL) with the collected deposit of Rs 6.91 arba and Rs 6.54 arba respectively. The industry average of deposit lies at Rs 3.59 arba.

Among the finance company operating in 1 to 3 districts, Srijana Finance (SFFIL) has a deposit of Rs 6.17 arba, Janaki Finance (JFL) has deposits of Rs 1.98 arba and Multipurpose Finance (MPFL) has deposits of Rs 21.98 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 8.03 arba, 5.84 arba and Rs 5.70 arba. The industry average stands at Rs 3.16 arba.

 Annualized EPS

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 15.76. ICFC Finance Limited (ICFC) has the second highest EPS that accounts to Rs 14.44. Finally, Best Finance Company Limited (BFC) has an EPS of Rs 12.73 per share. However, BFC reserve is in negative by almost 100 million.

Among the finance companies operating in 1 to 3 districts, Srijana Finance (SFFIL) has the highest EPS of Rs 19.99 followed by Janaki Finance (JFL) with an EPS of Rs 15.39. In the third position is Multipurpose Finance Company (MPFL) with an EPS of Rs 8.04.

 Net worth:

The industry net worth average is Rs 112.25 among the finance companies. United Finance Limited (UFL) has the highest net worth of Rs 141.76 followed by Gurkhas Finance Limited (GUFL) with net worth Rs 140.56. In the third place, we have Pokhara Finance Limited (PFL) with net worth per share of Rs 136.40.

Among finance companies operating in 1 to 3 districts, Multipurpose Finance Limited (MPFL) has a net worth of Rs 165.89, Janaki Finance Limited (JFL) has a net worth of Rs 146.23 and Srijana Finance (SFFIL) has the net worth per share of Rs 136.26.

P/E Ratio:

As per the general rule of thumb in finance, lower the P/E ratio, better the company. The finance companies with the least P/E ratio are Best Finance Company Limited (BFC) with P/E ratio of 8.25 times. However, reserve of BFC is in negative of Rs 100 million. Shree Investment & Finance Company Limited (SIFC) with P/E ratio of 10.15 times and ICFC Finance Company (ICFC) with P/E ratio of 11.15 times. 

Shrijana Finance (SFFIL) has a P/E ratio of 11.16 times, Janaki Finance Company Limited (JFL) has a P/E ratio of 11.44 times and Multipurpose Finance Company Limited (MPFL) has a P/E ratio of 24.75 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.