Stock Update

Strong performance yet again

Key points
Bajaj Finance
ŠŠ Strong Operating performance: For Q4FY19,
Reco: Buy | CMP: Rs3,112 Bajaj Finance (BFL) posted strong operating
performance with the net interest income (NII)
Company details
growing by 50.2% y-o-y to Rs 3394 crore on
back of healthy Loan book growth and AUM
Price target: Rs3,600 expansion.
Market cap: Rs179,841 cr Opex to Income (C/I, Calc.) was rationalized
52-week high/low: Rs3162 / 1873 further, strongly aided by a continued focus on
expanding fee revenue pool and better cost
NSE volume: (No of shares) 14.1 lakh
management. As a result of the same, the C/I
BSE code: 500034 ratio for the quarter declined to 34.6% (down
485BPS y-o-y and 19BPS q-o-q). Operating
NSE code: BAJFINANCE
expenses kept under control resulted in pre-
Sharekhan code: BAJFINANCE provisioning profit (PPOP, Calc) rising by 62%
y-o-y to Rs 2220 crore, and up 6.4% q-o-q.
Free float: (No of shares) 25.9 cr
Provisions (as per ECL basis) jumped by 80%
y-o-y to Rs 409 crore, but had come off by
Shareholding pattern 9.2% from Rs 450 crore, seen in Q3 FY19.
The company has migrated to IND-AS based
accounting and hence has restated prior period
numbers as per the new accounting standards.
Hence, the figures (especially Provisions etc
which are now under the ECL basis) are not
Public
Promoter strictly comparable on a yoy basis. As a result
44.8%
55.2% of higher topline, and contained provisions,
the Net profit for the quarter stood at Rs 1176.1
crore, being up by 57.3% YoY and 11% q-o-q.
ŠŠ Strong credit rating, diversified borrowing
help improve NIMs (Calc.) in an adverse
climate: BFL has consistently maintained a
Price chart strong credit rating which helps it maintain
3600
attractive Cost of Funds (CoF), thereby
maintaining healthy NIMs even in an adverse
3250
rate environment. The company has also been
2900 diversifying its borrowing mix to augment its
margins. Consolidated borrowings were of Rs
2550
1,01,588 crore with a mix of 37: 50: 13 between
2200 banks, money markets and deposits as of 31
1850 Mar 2019. We believe deposit accretion is an
important step in this direction, and hence,
1500
as on Q4 FY19, the deposits book stood at Rs
Nov-18

Jan-19

Jan-19

May-19
Feb-19
Jun-18

Sep-18

Mar-19

Mar-19
Aug-18
Jul-18

Jul-18

Apr-19
Oct-18

Oct-18

Dec-18

13,193 crore, up by 69% YoY. Further diversifying

its borrowing mix, BFL is also exploring the
Price performance Foreign Currency borrowing route and therein
has received a long-term issuer credit rating of
(%) 1m 3m 6m 12m “BBB-“with a stable outlook which is equivalent
Absolute -0.6 17.2 28.3 58.1 to India’s sovereign rating assigned by S&P
Global Ratings.
Relative to Sensex 4.1 13.0 21.6 49.6

May 16, 2019 2

Sharekhan Stock Update

ŠŠ Healthy business growth, prudent ALM
management: BFL witnessed healthy traction
in loan growth, with AUM growth of 41% to
Rs 115,888 crore and Net Interest Margins
(NIMs; Calc.) increasing by 60BPS to 12.0% for
FY19. Despite a tough liquidity environment,
the company has added receivables of Rs
8386 crore (was Rs 9,867 crore in Q3 FY19).
Growth was led mainly by the segments of
Rural B2C business (6% of overall book, up
70% yoy), mortgage lending business (29%
of overall book, up 43% y-o-y) and Consumer
B2C business (20% of the book, up 49% y-o-y).
During the quarter, the management adopted
a cautious outlook and chose to grow the book
in a calibrated manner, slowing down in areas
where its risk-return didn’t meet its parameters.
Notably, BFL continued to witness strong
customer traction, as it booked 1.9 million
new loans during the quarter, taking its total
customer franchise to 34.48 million, up 32%
y-o-y. This will be positive for sustaining growth
as well as generating cross-sell opportunities
for BFL. BFL has continued to manage its ALM
well and is well covered on ALM to manage
any impact of liquidity hardening and higher
interest rates on its P&L over short to medium
term period. Going forward, we expect annual
loan growth to be 35+% on 2-3 year CAGR
basis.
ŠŠ Stable Asset quality is positive, especially
seen in backdrop of fast growth: During the
quarter, Bajaj Finance witnessed stable asset
quality as its GNPA ratio stood at 1.54% (was
1.55% in Q3 FY19) while NNPA ratio stood at
0.63% (flat on sequential basis). Coming on
back of a scorching AUM growth pace of
40+%, stable asset quality, on a low base is a
commendable performance.
ŠŠ Outlook: BFL appears well set on a strong
and sustainable path of growth. Despite a
nascent rural financing book, positives such as
an attractive repeat customer base in the core
consumer book, a large SME customer base,
a rapidly deepening asset offering profile and
strong pricing power help BFL maintain its
growth and margins. We believe that over a
longer term, the company looks well placed
to clock AUM growth of over 35+%. The ability
of BFL to create new product categories,
leveraging its large customer base and
proactive risk management track-record are
key positives to support valuations.
ŠŠ Valuation: BFL has yet again delivered strong
performance and we believe it should continue
to enjoy premium valuations due to its strong
positives such as a strong growth outlook,
pricing power, impressive operating metrics and
strong return ratios expected to be maintained
over time (and even likely to improve as asset
heavy business gradually shifts to BHFL) in its
favor. We maintain our Buy rating on the stock
with a revised price target (PT) of Rs. 3600.

Results Rs cr
Particulars Q4FY19 Q4FY18 YoY% Q3FY19 QoQ%
Interest Income & Fees 5307.7 3487.7 52.2 4982.7 6.5
Interest and Other Charges 1913.2 1227.3 55.9 1785.7 7.1
Net Interest Income 3394.5 2260.4 50.2 3196.9 6.2
Other Income 0.8 3.9 -79.2 2.3 -64.8
Total Income 3395.3 2264.3 49.9 3199.2 6.1
Employee Expense 531.8 390.3 36.3 510.4 4.2
Depreciation & Amortisation Expenses 40.8 29.3 39.3 41.1 -0.6
Other Expenses 601.8 473.3 27.1 561.4 7.2
PPoP 2220.9 1371.4 61.9 2086.4 6.4
Provisions and Loan losses 409.3 227.2 80.1 450.8 -9.2
PBT 1811.6 1144.2 58.3 1635.7 10.8
Tax Expense 635.6 396.6 60.2 576.1 10.3
Profit After Tax 1176.1 747.6 57.3 1059.6 11.0

May 16, 2019 3

Sharekhan Stock Update

Valuations Rs cr
Particulars FY17 FY18 FY19 FY20E FY21E
Net interest income (Rs cr) 5,469 8,272 11,146 12,852 18,806
Net profit (Rs cr) 1,836 2,559 3,922 4,915 6,398
EPS (Rs) 33.6 44.4 68.0 85.2 111.0
PE (x) 90.0 68.1 44.4 35.5 27.2
Book value (Rs/share) 176 284 344 419 517
P/BV (x) 17.2 10.7 8.8 7.2 5.8
RoAE (%) 21.6 19.7 21.7 22.3 23.7
RoAA (%) 3.3 3.3 3.8 3.6 3.5

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

May 16, 2019 4

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