Bajaj Finance Ltd - Stock Valuation and Financial Performance

Bajaj Finance Ltd

Market Cap 357,567Cr
CMP 5,906
P/B 7.4

Check 10 year X-ray here

Key Highlight –

·        Urban B2C (20% of advances) grew by 29%, Rural B2C (8% of advances) grew by 20%, SME Lending (13% of advances) grew by 33%, while housing segment (32% of advances) grew by 26%.

·        Deposits at 21% of borrowing at 42,984 Cr.

·        GNPA & NNPA stood at 1.14% and 0.41% as of Q3 FY23 vs. 1.17% and 0.44% in Q3 FY22.

·        Provisions declined by 20% to 841 Cr.

·        Company acquired approximately 41.5% stake in Snapwork Technologies Private Limited for 92.74 Cr

Management Outlook –

·        Bajaj Finance to launch lending in New Auto Loans in Q2 FY24, Micro Finance in Q4 FY24 and Tractor financing in Q1 FY25.

·        Management aimed to attain market share of 3% of payments GMV, 3-4% of total credit and 4-5% of retail credit.

·        Management expects to grow advances at 25-27% in medium term.

Bajaj Finance | Market Cap 3,00,206

CMP 4,982 | P/B 8.8x TTM, P/E 50x FY22

Recommendation | Sell on elevated valuation

Results: Bajaj Finance reported flat Net Interest Income* and while operating profit declined by 5%. Total AUM^ grew by 4% year on year.

Click here for 10 year Xray

Key highlights:

• Segment-wise AUM performance: Auto, consumer and sales finance saw decline while Rural B2C and Securities lending and commercial lending saw good growth.
• Mortgage growth was 7% including Bajaj Home Finance 
• Mortgages form 33% of total loan book, while consumer B2C and SME lending form 20% and 13% respectively.
• Asset quality improved to Gross NPA (Stage 3 assets) 1.8% versus 1.9-3.7% in last three quarters. Debt coverage ratio stands at 58% currently.

Outlook: AUM growth is back across all businesses except in auto finance. Margin profile in all lines of businesses was steady at pre-COVID levels other than mortgages. All disbursement are back to pre-covid levels except Auto. Management believes that it will go back to growth rate of 20-25% loan book and ROE of 20% in FY22 even assuming 1.5-2% in NPA provisioning. It doesn’t anticipate further stress from renewed lockdown as it is better equipped to disburse and collects loans digitally.

The company is in the process of launching market place app for loans, insurance and investments. This will generate leads and fee income.

MoneyWorks4me Opinion: Bajaj Finance is growing its AUM at a healthy rate however it faced higher NPA which dented its growth rate in loans. Recent quarter gives us confidence that high provisions and improved collection efficiency will reduce NPA going forward. 

Current price factors very high growth rate beyond 30% CAGR over next 5 years. Hence we recommend Sell purely on valuation. Investing/holding at elevated valuation exposes you to risk of low returns. 

Post pandemic we have a weak outlook for discretionary spends and hence we believe achieving very high growth rate is difficult.

Bajaj Finance is at Rs. 1,50,000 Cr loan book so growing at more than 25% is a tough ask. This increases the risk of low returns in medium term. 

* Net Interest Income- Total interest earned by a company on loan minus Total interest that it expended on its borrowings.

^AUM- Assets under management

**GNPA & NNPA- Gross Non-Performing Asset & Net Non-Performing Asset

Bajaj Finance | Market Cap 3,00,206

CMP 4,982 | P/B 8.8x TTM, P/E 50x FY22

Recommendation | Sell   

Results: Bajaj Finance reported year on year decline of -5% both in Net Interest Income* and Total Income. Total AUM^ grew by 1% year on year.

Click here for 10 year Xray

Key highlights:

• Segment-wise AUM performance: Consumer loans (-1%), SME loans (1%) and Mortgage Loans (6%). Auto loans declined by -4%.
• Bajaj Housing increased its AUM by 18% and NII increased by 15% year on year. The year on year growth in home loans was 14% and Loans against property was 24%.
• There was deterioration in asset quality during the quarter. Gross NPA was 2.86% (vs 1.61% in Q4FY20) and Net NPA was 1.22% (vs 0.7% in Q4FY20). 

Outlook: AUM growth is back across all businesses except in auto finance. Margin profile in all lines of businesses was steady at pre-COVID levels other than mortgages. The management expects disbursement to reach pre-covid levels in next 2 quarters.

The company is in the process of launching Bajaj Pay, an integrated payment solution comprising of UPI, EMI card and credit card to its customers.

Bajaj Finance is growing its AUM at a healthy rate however; there is likely to be decline in the asset quality post moratorium. The potential risk to the high-growth trajectory is making risk-reward unfavourable. Considering the aftermath of the pandemic situation, we have a weak outlook for discretionary spends and hence we recommend wait until we see a revival in overall economic situation. We will recommend buying the stock if stock factors in moderate long term growth rate like private banks. Current price factors very high growth rate beyond 30% CAGR over next 5 years. We recommend Sell. Investing/holding at elevated valuation exposes you to risk of low returns, with exceptions. Base rates are very few companies manage to grow at more than 20% CAGR for more than 5 years. When a company is growing fast, competitors rush into same segments driving down high growth of an incumbent.

* Net Interest Income- Total interest earned by a company on loan minus Total interest that it expended on its borrowings.

^AUM- Assets under management

**GNPA & NNPA- Gross Non-Performing Asset & Net Non-Performing Asset

Results: Bajaj Finance reported year on year jump of 4% in Net Interest Income* and 3% in Total Income. Total AUM^ grew year on year by 1%.

Key highlights:

• Year on year growth in AUM was majorly contributed by segments like Consumer loans (5%), Rural Consumer loans (15%) and Mortgage Loans (14%). Auto loans grew by 7% on a lower base.
• Bajaj Housing increased its AUM by 31% and NII increased by 29% year on year. The year on year growth in home loans was 29% and Loans against property was 39%.
• There was a mild deterioration in asset quality during the quarter. Gross NPA was 1.61% (vs 1.54% in Q4FY19) and Net NPA was 0.65% (vs 0.63% in Q4FY19). Total slippage number increased by ~11% quarter on quarter, which is a matter of concern.
• Based on Supreme Court’s judgement on NPA classification, **GNPA & NNPA stood at 1.03% & 0.37% respectively. However, the adjusted GNPA and NNPA stood at 1.34% and 0.56% respectively.

Outlook: Bajaj Finance managed to maintain a conservative stance on volumes till August, given extended moratorium and absence of updated bureau data. From September, the Company started to accelerate volumes across all businesses. The company plans to achieve pre-Covid loan originations by March / April 21. NPA will accure over next few quarters as 90 days complete post lifting up of moratorium (Loans are classified as NPA after interest is not paid for 90 days)

Bajaj Finance is growing its AUM at a healthy rate however; there is likely to be decline in the asset quality post moratorium. The potential risk to the high-growth trajectory is making risk-reward unfavourable. Considering the current pandemic situation, we have a weak outlook for discretionary spends and hence we recommend wait until we see a revival in overall economic situation. We will recommend buying the stock if stock factors in moderate long term growth rate like private banks. Current price factors very high growth rate of close to 30% CAGR over next 5 years. We recommend Sell.

* Net Interest Income- Total interest earned by a company on loan minus Total interest that it expended on its borrowings.

^AUM- Assets under management

**GNPA & NNPA- Gross Non-Performing Asset & Net Non-Performing Asset