Bharat Financial Inclusion (BFIL), for Q3FY18, reported good set of numbers with gross NPAs declining 60 bps q-o-q to 4.6%, along with a gross loan growth of 34.4% to Rs 11,466 crore. The net interest income grew 41.4%. However, with the cost-income ratio (CI%) increasing 360 bps y-o-y to 43.2%, the pre-provisioning profit grew at a slower pace of 16.8%. Net profit grew 13.9%. In our past updates, we had a Hold rating on the stock considering high NPAs. However, over last 2 quarters, the asset quality has shown substantial improvement of 140 bps in 6 months along with disbursement growth improving to 58% in Q3 (from 7% in Q2 and -0.9% in Q1) resulting in better loan growth. Further, BFIL’s merger into IndusInd Bank is expected to draw several benefits for both the entities. Considering future growth prospects of BFIL along with better profitability and building synergies through merger, we remain positive on the stock of BFIL. We maintain our hold recommendation on the stock valuing it at 3.5x its FY20E adjusted book value (ABV) and adding PV of DTA benefits, arriving at a target price of Rs 1,193.
After several quarters of slower growth in disbursements and loans, the same grew at a robust pace of 58.1% to Rs 4,712 crore and 34.4% to Rs 11,466 crore, respectively as on December 31, 2017. Additionally, of the total gross loan book, only 10% is pre-demonetisation era, rest all has been disbursed post January 1, 2017 and has 99.8% collection efficiency. This builds further comfort in the growth going ahead — management guidance of 30% sustainable in the long term. BFIL has maintained their guidance of disbursements at Rs 19,500 crore and gross loan book at Rs 13,500 crore for FY18. Over FY17-20E, the loan book is expected to witness 31% CAGR to reach Rs 16,987 crore.
Asset quality improved with the gross NPA declining 60bps QoQ to 4.6% and net NPA down 10bps to 0.2%, as on 31 Dec’17. In absolute terms, the gross NPAs declining by 6.8% QoQ to Rs411 crore, led by Rs17.7 crore of write-offs during the quarter and ·12.3 crore of recoveries/upgrades. Furthermore, the overall collection efficiency for loans disbursed post 1 Jan’17 (89% of the total book), stood at 99.8%. Going ahead, the gross and net NPAs at expected to decline to 1.71% and 0.09% by the end of FY20E on the back of better recoveries and write-off and/or upgradation of old loans pertaining to pre-demonetisation period.
