Bajaj Finance: Maintain ‘Neutral’with TP of Rs 3,550

By: |
Updated: September 5, 2019 6:15:07 AM

The share of new loans booked from consumer durables (CD) declined meaningfully from 71% in FY17 to 54% in FY19.

Bajaj Finance rating, Bajaj Finance profit, Bajaj Finance revenue, Bajaj Finance shares, Bajaj Finance stocks, Bajaj Finance loans, CD loanOutstanding AUM now stands at `97 billion, almost equal to that of HDFCB.

Bajaj Finance’s (BAF) AUM growth has been driven largely by volumes. Growth in its customer base accelerated to 32% y-o-y in FY19 from 28% over the prior two years. At the same time, the number of new loans disbursed increased at a consistent pace of ~50% y-o-y in the year, in line with past trends.

‘EMI card’ is gaining strong traction. Notably, the number of EMI cards outstanding has more than tripled over the past three years to 18.5 million. More importantly, the share of new loans booked via EMI cards increased meaningfully from 22% in FY16 to 49% in FY19. Note that the EMI card not only reduces opex for the company but also results in lower credit cost (as the card is used by an existing customer).

While BAF toned down its 2W disbursements in FY18, it did the opposite in the subsequent year (number of 2Ws financed by BAF increased 50% y-o-y to 1.02 million in FY19). Outstanding AUM now stands at `97 billion, almost equal to that of HDFCB. Interestingly, the average ticket size increased from `56,000 in FY16 to `81,000 in FY19 – higher than that of most peers.

Fee income has grown faster than the balance sheet. Total fees more than doubled from `8 billion to `17 billion y-o-y in FY19. The key driver was ~3x increase in distribution income to `6.6 billion during the year. With fee income at 1.7% of average AUM in FY19, BAF is one of the highest fee income generators under our coverage universe (others are sub-1%).

Interestingly, the unsecured loan book of BAF has lower stage-2/3 loans (0.8%/1.4%) compared to the secured loan book (2.4%/1.7%). However, naturally, ECL provisioning on the unsecured book is significantly higher (40%/73% compared to 13%/51%).

READ ALSO | Sensex gains 162 points after stock market mayhem; ICICI Bank, HDFC Bank top Nifty gainers

The share of new loans booked from consumer durables (CD) declined meaningfully from 71% in FY17 to 54% in FY19.

However, the increase in the share of other products probably points to repeat purchase, as customers generally start their association with BAF using a CD loan and then use other products. In addition, one of every two loans booked in FY19 came from the EMI card, against one in every five loans in FY16. This indicates higher repeat business and, in turn, low incremental opex and credit costs for these loans.

While BAF continues its robust growth trajectory, it has also enhanced its capabilities on two fronts –fee income and the deposit franchise, over the past two years. With a scale back in certain products, we expect AUM growth to slow down to 30% y-o-y in FY20 (41% in FY19). We keep our estimates unchanged – we have not factored in the possibility of a capital raise in our numbers. Maintain ‘Neutral’ with a TP of `3,550 (7x FY21E BVPS).

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.