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Bajaj
Finance Limited is a non-banking finance company (NBFC). The Company is engaged
in lending and allied activities. It focuses on consumer lending, small and
medium-sized enterprises (SME) lending, commercial lending, rural lending,
fixed deposits and value-added services. Its consumer lending products include
two-wheelers and three-wheelers finance, consumer durables finance, digital
products finance, retailer finance, salaried personal loans, e-commerce
consumer finance, e-commerce seller finance and home loan. Its SME lending
products include loan against property and business loans. Its commercial
lending products include loan against securities and financial institutions
group lending business. Its rural lending products include personal loans cross-sell,
salaried personal loans and gold loans. It offers retail fixed deposits and
wholesale fixed deposits. It is engaged in life insurance distribution, general
insurance distribution and mutual fund distribution.
Operating performance
strong:
Bajaj Finance (BFL) has reported a robust operating performance for
Q4FY2017, with the Net Interest Income (NII) surging by 48.3% YoY to
Rs1,477.0crore, while the Non-interest Income increased by 49.7% YoY to Rs212.2
crore. The impressive growth in the NII was driven by healthy growth in
Advances (up 32.9% YoY) and expansion of Net Interest Margin (NIM; calc) by
103BPS. During the quarter, the company enjoyed the benefits of lower Cost of
Funds (CoF) while lower NIMs during Q3FY2017 (due to demonetisation) resulted
in NIM expansion. Provisions surged by 85.1% YoY to Rs289.7 crore, which was
due to the additional charge of Rs70 crore toward demonetisation and
non-recurring provisions. Going forward, the BFL management indicated that it
will have to take a further charge of ~Rs40 crore in the next 2-3 quarters as
the final impact of demonetisation, which at ~2% of PPOP should not have any
significant adverse effect. NIM expansion and well-managed operations resulted
in the PAT growing by a healthy 42.6% YoY to Rs449.2 crore.
AUM growth picks up post
demonetisation:
Q3FY2017, which was BFL’s seasonally strong quarter, was impacted on
account of demonetisation with an adverse effect on its credit growth.
Consequently, BFL’s performance in Q4FY2017 has been comparatively better on a
QoQ basis. In Q4FY2017, the company’s business growth improved, with AUM
expanding by 36.1% YoY. Its main loan segments, viz. Consumer loans (45% of
AUM, up by 43% YoY), SME loans (36.7% of AUM, up by 18% YoY), Commercial loans
(13% of AUM, up 51.5% YoY) and Rural loans (5% of AUM, up 129% YoY) all
reported healthy growth. Digging further deep, the Consumer loans business was
mainly driven by Digital Products (up 63% YoY), Personal loans (up 60% YoY) and
Salaried loans (up 93% YoY). Growth in the SME book was fueled by a 56% YoY
expansion in Professional loans and a 31% jump in Business loans. Loan Against
Property (LAP) has seen a slowdown due to the BFL management’s cautious
approach, resulting in the LAP portfolio remaining flat.
Asset quality dips
marginally:
During Q4FY2017, the asset quality of BFL witnessed some stress, with
the Gross Non-Performing Assets (GNPA) increasing by 21BPS QoQ to 1.68% while
the Net NPA increased by 5BPS QoQ to 0.44%. The company also took additional provisions
worth Rs70 crore on account of demonetisation and non-recurring provisions,
which resulted in the slight deterioration in asset quality. However, the asset
quality is still at a very healthy level, and the company boasts of 74%
Provision Coverage Ratio, besides Rs300 crore of general provisions, which is
also comforting.
Outlook and valuation:
BFL has delivered a decent performance for Q4FY2017 despite growing
competition and the lag effects of demonetisation. Healthy operational
parameters, AUM expansion and a decent asset quality are the key
differentiating factors. BFL has been a leading innovator in the NBFC space and
going forward better customer mining and further improvement in systems &
processes will allow it to maintain its strong growth trajectory and
profitability. We upgrade to ’Buy’ with
a price target of Rs1,550.