Bharat Financial Inclusion stock target price raised to Rs 920 by Credit Suisse

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Published: July 28, 2017 2:12:53 AM

BHAFIN reported strong improvement in collections, indicating a good recovery from the demonetisation crisis. Exit collections efficiency for July is at 99.5%, and 97.5% for Q1 18.

Bharat Financial Inclusion, Bharat Financial stock, demonetisation crisis, demonetisation, BHAFIN, retail centre strategy, AUM growth, profit guidance The company reported a loss for Q118, with a higher-than-expected provisioning. (Image: Reuters)

BHAFIN reported strong improvement in collections, indicating a good recovery from the demonetisation crisis. Exit collections efficiency for July is at 99.5%, and 97.5% for Q1 18. The total loss to portfolio from demonetisation event can now be pencilled in below 5%. The company reported a loss for Q118, with a higher-than-expected provisioning. While we were expecting the Rs 25 billion provisions to be spread across two-three quarters, BHAFIN has accelerated and provided 70% in Q1 itself, should reduce in the coming quarters.

The company is making progress on its retail centre strategy, with 102 pilot stores currently running in Karnataka. This could be a meaningful fee revenue driver in future, besides helping save costs.

BHAFIN has emerged out of last year’s event with minimal damage, and its Q1 numbers allay concerns about loan waiver impact. Overall, we continue to expect strong profit growth for the company. Our numbers go up as we build better growth, leading to 4-5% EPS increases. Our TP rises to Rs 920, from Rs 800.

The NII miss was due to slower AUM growth, and lower securitisation. We believe these are understandable in the current circumstance, where the company is emerging from the crisis. Management has reiterated its guidance for 50% loan growth.

Loan book disbursed post January 2017 is running at 99.9% collection efficiency. Currently, this is 65% of the portfolio, and should be 85% of the portfolio by the September 2017 quarter, and ~100% by the end of 2017. Management reiterated its profit guidance of Rs 4.4 billion—we see upside risks to this number.

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