While most NBFCs in India are niche lenders, BJFN is a rare highly diversified profitable NBFC that targets urban affluent and mass affluent customers, with a focus on product innovation and cross selling.
Key segments are consumer and SME lending (85% of loans in FY16). The loan book is a mix of high yielding unsecured (55% of AUM) and lower yielding secured segments (45%). Being diversified, management could take tough calls over the years. It cut exposure to segments early in the NPL cycle and more recently moved to direct origination in certain segments.
We forecast an AUM CAGR of 33% in F16-19. Market share in consumer and non-consumer loans will still be only about 1.1% and 1.8% in F19. We expect customer acquisition growth (trailing one year at 40% y-o-y) to sustain on improving consumption indicators. Momentum is growing in key profitable segments like consumer durables and two wheelers (25% of AUM).
BJFN has a track record of strong and consistent expansion in its distribution and product suite. Accelerating cross selling efficiency and direct origination are likely to result in operating leverage and better asset quality.
Respondents in west and south India, accounting for 65% of system retail credit, were sanguine on growth and less concerned about competition, underwriting and NPLs. Sentiment in north India (15% of system retail credit) was relatively subdued BJFN’s premium valuation multiple (22x F18 P/E) should sustain given strong EPS growth and an improving environment for retail lenders.