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Restructuring has set the base for sustainable growth: Post induction of
new management team led by Mr. Rajeev Jain, Bajaj Finance (BAF) underwent
significant restructuring during FY08-10 which included a) shift in focus
towards the affluent and HNI segment in the consumer business, b)
transformation from primarily being a captive business model (Bajaj Auto’s
finance arm) focused on 2-wheeler and consumer durable business to a
diversified NBFC with full suite of lending products, c) Significant improvement
in origination and underwriting processes by investing in technology, using
information from CIBIL and creating a dedicated risk analytics unit which has
enhanced its risk management capabilities. Going ahead, we believe BAF is
well-positioned to deliver sustainable and profitable growth which is scalable
with lower risk, as it intends to focus on secured business lines.
Secured business lines to drive loan book CAGR of 32% over FY11-13E: We
expect secured loan products (loan against property, construction equipment
finance and infrastructure finance) to drive loan book CAGR of 32% over FY11-
13E, while unsecured business lines would be in consolidation phase after
witnessing strong growth during FY09-11. Consequently, we expect secured
assets to account for c.55-60% of the book by FY13E vs c.30% in FY10.
Healthy NII CAGR of 26% despite margin pressure due to change in loanmix
and higher borrowing costs: We factor-in significant margin decline of
c.440bps over FY10-13E due to a) lower asset yields on account of higher
proportion of secured business going ahead, b) increase in cost of borrowings.
We still expect a healthy 26% CAGR in NII over FY11-13E.
Credit costs to decline by 135bps over FY11-13E; coverage ratio now at
healthy 71% level: We expect credit costs for BAF to decline by 135bps over
FY11-13E given a) change in loan mix towards secured assets; b) BAF has
improved its coverage ratio from 28% in FY08 to a healthy 71% currently. We
forecast gross and net NPLs of 4% and 1% respectively in FY13E.
Earnings CAGR of 27% with healthy ROE of c.22%: We expect earnings CAGR
of c.27% over FY11-13E on strong loan growth, lower credit costs and
improving cost ratios. We expect BAF to report healthy return ratios with ROA
of 3.1% and ROE of 22% by FY13.
Solid business available at compelling valuation; initiate with BUY and TP
of `990: BAF is currently trading at a compelling valuation of 5.7x/1.2x based
on FY13E earnings and book value respectively. We value BAF at 9x Mar’13 EPS
(implied P/B of 1.8x), implying Mar’12 target price of `990, upside of c.57%.
Key risks: Spike in interest rates and higher than expected delinquencies.
Bajaj Finance (BAF)
Restructuring has set the base for sustainable
growth
Transformed from finance arm of Bajaj Auto to a diversified consumer
finance player
Post induction of new management team led by Mr. Rajeev Jain, Bajaj Finance
underwent significant business and organisational restructuring during FY08-
10 which included a) shift in focus towards the affluent and HNI segment in the
consumer business, b) transformation from primarily being a captive business
model (Bajaj Auto’s finance arm) focused on 2-wheeler and consumer durable
business to a diversified NBFC with full suite of lending products, c) Significant
improvement in origination and underwriting processes by investing in
technology, using information from credit bureau (CIBIL) and creating a
dedicated risk analytics unit which has enhanced its risk management
capabilities. Going ahead, we believe Bajaj Finance is well-positioned to deliver
sustainable and profitable growth which is scalable with lower risk, as it intends
to focus on secured business lines.
Business Model
Product strategy shown in Exhibit 4 highlights BAF’s business model going ahead.
The model would focus on consumer and small business segments. It would
comprise profit maximisers like loan against consumer durable, personal / small
business loans and loan against shares which would help generate high
profitability with ROA in the range of 4-5%. On the other hand, to ensure stability
and achieve scale, the company would focus on scale builders like loan against
property, construction equipment and infrastructure finance which would generate
ROA of 2-2.5%. As scale builders are expected to constitute c.60% of the loan book
going forward, this model should result in healthy return ratios with ROA in the
range of c.3-3.2%. In our opinion, this scalable and stable business model should
lead to significant re-rating of the stock going ahead.
Loan composition – Focus on secured book
We expect secured loan products like loan against property, construction
equipment finance and infrastructure finance to drive loan book CAGR of 32% over
FY11-13E, while unsecured business lines would be in consolidation phase after
witnessing strong growth during FY09-11. Consequently, we expect secured assets
to constitute c.55-60% of the book by FY13E vs c.30% in FY10.
Bajaj Auto’s 2/3-wheelers account for 27% of loan book
The company continues to leverage on the distribution network of Bajaj Auto to
build its 2/3 wheeler loan book. Currently, the company is present in 448
dealerships and has access to over 1,000 sub-dealers across India. In FY10,
BAF’s penetration as a % of domestic sales of Bajaj two-wheelers was at 23%
(FY09: 20%). 2/3 wheeler loans currently account for 27% of the loan book and
going ahead, we expect this proportion to decline to c.20% by FY13E.
LAP to constitute c.30% of the book by FY13E
BAF started offering this product, which targets HNIs, in FY09. The share of LAP
in the loan book has increased significantly from 12% in FY09 to 27% as of
3Q11. We expect LAP to constitute c.30% of the book by FY13E.
Robust 26% CAGR in NII over FY11E-13E despite
margin compression
Yield to moderate as loan mix changes in favour of secured lending
Going forward, we expect yield on advances to moderate as BAF changes the
loan mix in favour of secured but lower yielding lending such as construction
equipment finance (CEF), infrastructure financing and loan against property
(LAP). Further, BAF was a beneficiary of benign interest rate environment in the
last 2 years which helped it reduce its cost of borrowings by c.200bps. We
expect borrowing cost to go up during FY11-13E. Consequently, we expect
change in loan mix and higher borrowing costs to adversely impact margins.
We factor-in significant margin decline of c.440bps over FY10-13E
Margins to decline by c.440bps over FY10E–13E
We expect margins to decline during FY11E–13E due to a) moderation in yield
on advances due to change in loan mix in favour of lower yielding but secured
lending of CEF, LAP and infra finance, b) increase in cost of borrowings by
c.115bps over FY11E-13E given higher interest rates. Hence, we expect margins
to decline by c.440bps over FY10-13E. However, despite factoring in margin
pressure, we expect healthy 26% CAGR in NII over FY11-13E.
Cost ratios to improve by 100 bps over next 2
years
Opex remained at elevated levels due to technology upgrade,
strengthening of employee base and focus on small ticket costly loans
During FY07-10, operating expenses witnessed 34% CAGR as cost to assets
jumped to 8.1% in FY10 from 4.6% in FY07 on a) massive investment in
technology up–gradation - Company implemented a fully integrated state-ofthe-
art lending platform to streamline processing, deliver lower unit cost and
minimise operational risks, b) strengthening of employee and sales force -
During FY07-10, company strengthened its sales force by almost doubling its
employee base which led to 45% CAGR in employee costs.
Operational efficiencies, restructuring of distribution network and higher
ticket loans to bring cost to assets down by 100bps over next 2 years
We expect cost to assets to decline by 100bps to 5.8% over the next 2 years
due a) benefits of operating efficiencies - We expect investment made for
technology up–gradation and human resource to start yielding benefits as most
of the fixed cost investments are done with. b) Restructuring of distribution
network - The company restructured its distribution network and currently
operates through 63 branches vs 113 in FY07. Similarly, cross–selling is
gaining prominence and generates c.20% of loan book (small business loans
and personal loans) and is very cost effective c) Focusing on high ticket
secured loans -The company has also changed its strategy and focuses on
high ticket secured loans (e.g. CEF, LAP) which reduces business origination
and administration cost significantly.
Credit costs to decline by 135bps over FY11-13E
Expect stable asset quality trends over next 2 years
Given the economic slowdown and concentrated unsecured loan book, BAF
faced asset quality issues during FY07-09. Gross NPLs increased from 3.8% in
FY07 to 16.6% in FY09 while credit costs increased from 355bps to 815bps
during the period. However, since then apart from the change in loan mix
towards secured assets, significant improvement in origination and
underwriting processes by investing in technology, using information from
credit bureau (CIBIL) and creating a dedicated risk analytics unit has enhanced
risk management capabilities. Consequently, asset quality improved with gross
NPLs down to 3.6% and net NPLs to 1.1% in 3Q11 vs gross and net NPL of 16.6%
and 11.9% in FY09. Going ahead, we expect gross NPAs of c.4.1% in FY13E for
BAF with net NPA at c.1.1%.
Credit Costs have peaked in FY10
Credit costs in our opinion have peaked at c.815bps in FY10 and are expected
to decline to 260bps in FY13E (vs 398bps in FY11E) due to:
a) Shift in portfolio mix towards secured assets: Given the increasing
proportion of secured assets, we expect delinquencies to be lower for BAF
which should lead to a decline in credit costs.
b) Tightening in credit origination by using in–house credit managers at
dealerships: Earlier, business origination for 2 and 3-wheelers was done by
dealers themselves which resulted in higher delinquencies. However, now
the company has tightened credit origination by deploying in–house credit
managers, resulting in improved asset quality.
c) Use of CIBIL and cross selling: BAF has made CIBIL check compulsory
before loan sanction which is leading to substantial reduction in loan
losses. Similarly, it is also emphasising on cross selling where in it targetscustomers with good repayment history for its two-wheeler/consumer
durables loans.
d) Focus on ‘premium’ (affluent and HNI) customers: BAF earlier focused on
mass customers in rural and semi urban areas with poor asset quality
However, BAF’s strategy to focus on ‘mass affluent’ customers has led to
substantial improvement in the credit quality from fresh originations.
e) Improvement in collections and IT Infrastructure.
f) BAF has also tightened its fresh origination norms by making loan-to-value
(LTV) ratio more stringent.
g) BAF has also moved out of loss making dealer locations and high lossmaking
personal computer business.
h) Introduction of trailing dealer commission, direct cash collection
mechanism and elimination of channel risk should lead to better asset
quality.
Credit costs to decline by 135bps over FY11-13E, coverage ratio at healthy
77% level:
Apart from higher delinquencies, credit costs remained at elevated levels
during FY08-10 as BAF created provisions to increase its coverage ratio from
28% to 55% during the period. Currently, the coverage ratio is at healthy level
of 71%. This coupled with lower delinquencies due to reasons mentioned above
should lead to 135bps decline in credit cost for BAF over FY11-13E to
c.260bps in FY13E with coverage ratio at 75%.
Highly experienced management team
Outside talent, variable pay and ESOPs to spearhead the restructuring
process
Management team led by Mr. Rajeev Jain is well–supported by highly
experienced professionals (exhibit 18). Post streamlining of businesses, the
company hired business heads from MNCs and private banks with experience
of at least ten years in niche consumer lending business. The company also
introduced performance linked pay (only fixed pay earlier) and an Employee
Stock Option scheme to further lower the turnover rate and foster loyalty.
Current management team is responsible for turning the company into
diversified asset financier from mere consumer financier earlier. With
management bandwidth in place, we believe that BAF is well-positioned to
deliver sustainable and profitable growth going ahead.
Exhibit 18. BAF: Management Profile
Name Designation Profile
Mr. Rajeev Jain Chief Executive Officer
– Has more than 18 years of experience in auto loans, durable loans,
personal loans and credit cards
– Earlier he worked for over four years with GE and eight years with
American Express respectively and joined the company from AIG, where he
was the Deputy CEO of the consumer finance business
– Instrumental in transforming BAF from a mere consumer finance business
to one of the most diversified NBFCs
Mr. Pankaj Thadani Chief Financial Officer
– Has experience of 28 years in financing, financial accounting, cost
accounting, tax, and systems
– His previous assignments were with Bajaj Auto Limited, Eicher and Mico
Bosch
– Helped the company grow from a single business company to a diversified
NBFC
Mr. Rajesh K Chief Risk Officer
– Over 13 years of experience in risk management domain of consumer and
commercial lending
– Earlier worked with HSBC, First Leasing (handled commercial asset
financing), GE Money (unsecured personal loan, portfolio securitization and
auto lease) and Prime Financial (Head of Risk Policy and Analytics
Mr. Amit Gainda Head - Loan Against Properties
– Joined from GE Money, where he held the position of National Sales
Manager - Mortgages
– With over 13 years of varied experience, he manages the Loan Against
Property business which is a high growth business for the company
Mr. Sanjeev Vij
Head - Construction Equipment
Finance
– 19 years of experience in Retail Consumer Finance, SME mid-markets, and
Corporate Finance
– Will be responsible for profitably setting up and growing Construction
Equipment Finance business that would be a highly strategic revenue driver
for BAF
Mr. Devang Mody Head - Sales Finance
– Worked with GE Money, AIG and E&Y on various assignments in Six Sigma,
Sales Finance, Cross-Sell, and Personal Loans
– Turned around the sales finance business of BAF with substantial gaining
of market share
Source: Company, JM Financial.
Initiate coverage with BUY and TP of `990
Initiate coverage with BUY and TP of `990
We value BAF at 9x Mar’13 EPS (implied P/B of 1.9x), implying Mar’12 target
price of `990, upside of c.57%.
Key risks
Significant economic slowdown: Significant economic slowdown is a key risk
and could lead to slower growth and impact BAF’s earnings adversely. Further,
it may result in deterioration in asset quality and could adversely affect the
company’s profitability.
Spike in interest rates: Being a wholesale funded institution, any sustained
liquidity shock could impact spreads adversely and affect profitability.
Higher than expected credit costs: Although we have been conservative in
our credit cost assumptions, higher than expected delinquencies due
unseasoned loan book (construction equipment, LAP and infra finance) remain
a risk to our estimates.
Significant increase in competitive intensity: Any significant increase in
competition in the 2/3-wheeler and consumer durable space could impact BAF
adversely.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Ready to cruise in its new Avatar
Restructuring has set the base for sustainable growth: Post induction of
new management team led by Mr. Rajeev Jain, Bajaj Finance (BAF) underwent
significant restructuring during FY08-10 which included a) shift in focus
towards the affluent and HNI segment in the consumer business, b)
transformation from primarily being a captive business model (Bajaj Auto’s
finance arm) focused on 2-wheeler and consumer durable business to a
diversified NBFC with full suite of lending products, c) Significant improvement
in origination and underwriting processes by investing in technology, using
information from CIBIL and creating a dedicated risk analytics unit which has
enhanced its risk management capabilities. Going ahead, we believe BAF is
well-positioned to deliver sustainable and profitable growth which is scalable
with lower risk, as it intends to focus on secured business lines.
Secured business lines to drive loan book CAGR of 32% over FY11-13E: We
expect secured loan products (loan against property, construction equipment
finance and infrastructure finance) to drive loan book CAGR of 32% over FY11-
13E, while unsecured business lines would be in consolidation phase after
witnessing strong growth during FY09-11. Consequently, we expect secured
assets to account for c.55-60% of the book by FY13E vs c.30% in FY10.
Healthy NII CAGR of 26% despite margin pressure due to change in loanmix
and higher borrowing costs: We factor-in significant margin decline of
c.440bps over FY10-13E due to a) lower asset yields on account of higher
proportion of secured business going ahead, b) increase in cost of borrowings.
We still expect a healthy 26% CAGR in NII over FY11-13E.
Credit costs to decline by 135bps over FY11-13E; coverage ratio now at
healthy 71% level: We expect credit costs for BAF to decline by 135bps over
FY11-13E given a) change in loan mix towards secured assets; b) BAF has
improved its coverage ratio from 28% in FY08 to a healthy 71% currently. We
forecast gross and net NPLs of 4% and 1% respectively in FY13E.
Earnings CAGR of 27% with healthy ROE of c.22%: We expect earnings CAGR
of c.27% over FY11-13E on strong loan growth, lower credit costs and
improving cost ratios. We expect BAF to report healthy return ratios with ROA
of 3.1% and ROE of 22% by FY13.
Solid business available at compelling valuation; initiate with BUY and TP
of `990: BAF is currently trading at a compelling valuation of 5.7x/1.2x based
on FY13E earnings and book value respectively. We value BAF at 9x Mar’13 EPS
(implied P/B of 1.8x), implying Mar’12 target price of `990, upside of c.57%.
Key risks: Spike in interest rates and higher than expected delinquencies.
Bajaj Finance (BAF)
Restructuring has set the base for sustainable
growth
Transformed from finance arm of Bajaj Auto to a diversified consumer
finance player
Post induction of new management team led by Mr. Rajeev Jain, Bajaj Finance
underwent significant business and organisational restructuring during FY08-
10 which included a) shift in focus towards the affluent and HNI segment in the
consumer business, b) transformation from primarily being a captive business
model (Bajaj Auto’s finance arm) focused on 2-wheeler and consumer durable
business to a diversified NBFC with full suite of lending products, c) Significant
improvement in origination and underwriting processes by investing in
technology, using information from credit bureau (CIBIL) and creating a
dedicated risk analytics unit which has enhanced its risk management
capabilities. Going ahead, we believe Bajaj Finance is well-positioned to deliver
sustainable and profitable growth which is scalable with lower risk, as it intends
to focus on secured business lines.
Business Model
Product strategy shown in Exhibit 4 highlights BAF’s business model going ahead.
The model would focus on consumer and small business segments. It would
comprise profit maximisers like loan against consumer durable, personal / small
business loans and loan against shares which would help generate high
profitability with ROA in the range of 4-5%. On the other hand, to ensure stability
and achieve scale, the company would focus on scale builders like loan against
property, construction equipment and infrastructure finance which would generate
ROA of 2-2.5%. As scale builders are expected to constitute c.60% of the loan book
going forward, this model should result in healthy return ratios with ROA in the
range of c.3-3.2%. In our opinion, this scalable and stable business model should
lead to significant re-rating of the stock going ahead.
Loan composition – Focus on secured book
We expect secured loan products like loan against property, construction
equipment finance and infrastructure finance to drive loan book CAGR of 32% over
FY11-13E, while unsecured business lines would be in consolidation phase after
witnessing strong growth during FY09-11. Consequently, we expect secured assets
to constitute c.55-60% of the book by FY13E vs c.30% in FY10.
Bajaj Auto’s 2/3-wheelers account for 27% of loan book
The company continues to leverage on the distribution network of Bajaj Auto to
build its 2/3 wheeler loan book. Currently, the company is present in 448
dealerships and has access to over 1,000 sub-dealers across India. In FY10,
BAF’s penetration as a % of domestic sales of Bajaj two-wheelers was at 23%
(FY09: 20%). 2/3 wheeler loans currently account for 27% of the loan book and
going ahead, we expect this proportion to decline to c.20% by FY13E.
LAP to constitute c.30% of the book by FY13E
BAF started offering this product, which targets HNIs, in FY09. The share of LAP
in the loan book has increased significantly from 12% in FY09 to 27% as of
3Q11. We expect LAP to constitute c.30% of the book by FY13E.
Robust 26% CAGR in NII over FY11E-13E despite
margin compression
Yield to moderate as loan mix changes in favour of secured lending
Going forward, we expect yield on advances to moderate as BAF changes the
loan mix in favour of secured but lower yielding lending such as construction
equipment finance (CEF), infrastructure financing and loan against property
(LAP). Further, BAF was a beneficiary of benign interest rate environment in the
last 2 years which helped it reduce its cost of borrowings by c.200bps. We
expect borrowing cost to go up during FY11-13E. Consequently, we expect
change in loan mix and higher borrowing costs to adversely impact margins.
We factor-in significant margin decline of c.440bps over FY10-13E
Margins to decline by c.440bps over FY10E–13E
We expect margins to decline during FY11E–13E due to a) moderation in yield
on advances due to change in loan mix in favour of lower yielding but secured
lending of CEF, LAP and infra finance, b) increase in cost of borrowings by
c.115bps over FY11E-13E given higher interest rates. Hence, we expect margins
to decline by c.440bps over FY10-13E. However, despite factoring in margin
pressure, we expect healthy 26% CAGR in NII over FY11-13E.
Cost ratios to improve by 100 bps over next 2
years
Opex remained at elevated levels due to technology upgrade,
strengthening of employee base and focus on small ticket costly loans
During FY07-10, operating expenses witnessed 34% CAGR as cost to assets
jumped to 8.1% in FY10 from 4.6% in FY07 on a) massive investment in
technology up–gradation - Company implemented a fully integrated state-ofthe-
art lending platform to streamline processing, deliver lower unit cost and
minimise operational risks, b) strengthening of employee and sales force -
During FY07-10, company strengthened its sales force by almost doubling its
employee base which led to 45% CAGR in employee costs.
Operational efficiencies, restructuring of distribution network and higher
ticket loans to bring cost to assets down by 100bps over next 2 years
We expect cost to assets to decline by 100bps to 5.8% over the next 2 years
due a) benefits of operating efficiencies - We expect investment made for
technology up–gradation and human resource to start yielding benefits as most
of the fixed cost investments are done with. b) Restructuring of distribution
network - The company restructured its distribution network and currently
operates through 63 branches vs 113 in FY07. Similarly, cross–selling is
gaining prominence and generates c.20% of loan book (small business loans
and personal loans) and is very cost effective c) Focusing on high ticket
secured loans -The company has also changed its strategy and focuses on
high ticket secured loans (e.g. CEF, LAP) which reduces business origination
and administration cost significantly.
Credit costs to decline by 135bps over FY11-13E
Expect stable asset quality trends over next 2 years
Given the economic slowdown and concentrated unsecured loan book, BAF
faced asset quality issues during FY07-09. Gross NPLs increased from 3.8% in
FY07 to 16.6% in FY09 while credit costs increased from 355bps to 815bps
during the period. However, since then apart from the change in loan mix
towards secured assets, significant improvement in origination and
underwriting processes by investing in technology, using information from
credit bureau (CIBIL) and creating a dedicated risk analytics unit has enhanced
risk management capabilities. Consequently, asset quality improved with gross
NPLs down to 3.6% and net NPLs to 1.1% in 3Q11 vs gross and net NPL of 16.6%
and 11.9% in FY09. Going ahead, we expect gross NPAs of c.4.1% in FY13E for
BAF with net NPA at c.1.1%.
Credit Costs have peaked in FY10
Credit costs in our opinion have peaked at c.815bps in FY10 and are expected
to decline to 260bps in FY13E (vs 398bps in FY11E) due to:
a) Shift in portfolio mix towards secured assets: Given the increasing
proportion of secured assets, we expect delinquencies to be lower for BAF
which should lead to a decline in credit costs.
b) Tightening in credit origination by using in–house credit managers at
dealerships: Earlier, business origination for 2 and 3-wheelers was done by
dealers themselves which resulted in higher delinquencies. However, now
the company has tightened credit origination by deploying in–house credit
managers, resulting in improved asset quality.
c) Use of CIBIL and cross selling: BAF has made CIBIL check compulsory
before loan sanction which is leading to substantial reduction in loan
losses. Similarly, it is also emphasising on cross selling where in it targetscustomers with good repayment history for its two-wheeler/consumer
durables loans.
d) Focus on ‘premium’ (affluent and HNI) customers: BAF earlier focused on
mass customers in rural and semi urban areas with poor asset quality
However, BAF’s strategy to focus on ‘mass affluent’ customers has led to
substantial improvement in the credit quality from fresh originations.
e) Improvement in collections and IT Infrastructure.
f) BAF has also tightened its fresh origination norms by making loan-to-value
(LTV) ratio more stringent.
g) BAF has also moved out of loss making dealer locations and high lossmaking
personal computer business.
h) Introduction of trailing dealer commission, direct cash collection
mechanism and elimination of channel risk should lead to better asset
quality.
Credit costs to decline by 135bps over FY11-13E, coverage ratio at healthy
77% level:
Apart from higher delinquencies, credit costs remained at elevated levels
during FY08-10 as BAF created provisions to increase its coverage ratio from
28% to 55% during the period. Currently, the coverage ratio is at healthy level
of 71%. This coupled with lower delinquencies due to reasons mentioned above
should lead to 135bps decline in credit cost for BAF over FY11-13E to
c.260bps in FY13E with coverage ratio at 75%.
Highly experienced management team
Outside talent, variable pay and ESOPs to spearhead the restructuring
process
Management team led by Mr. Rajeev Jain is well–supported by highly
experienced professionals (exhibit 18). Post streamlining of businesses, the
company hired business heads from MNCs and private banks with experience
of at least ten years in niche consumer lending business. The company also
introduced performance linked pay (only fixed pay earlier) and an Employee
Stock Option scheme to further lower the turnover rate and foster loyalty.
Current management team is responsible for turning the company into
diversified asset financier from mere consumer financier earlier. With
management bandwidth in place, we believe that BAF is well-positioned to
deliver sustainable and profitable growth going ahead.
Exhibit 18. BAF: Management Profile
Name Designation Profile
Mr. Rajeev Jain Chief Executive Officer
– Has more than 18 years of experience in auto loans, durable loans,
personal loans and credit cards
– Earlier he worked for over four years with GE and eight years with
American Express respectively and joined the company from AIG, where he
was the Deputy CEO of the consumer finance business
– Instrumental in transforming BAF from a mere consumer finance business
to one of the most diversified NBFCs
Mr. Pankaj Thadani Chief Financial Officer
– Has experience of 28 years in financing, financial accounting, cost
accounting, tax, and systems
– His previous assignments were with Bajaj Auto Limited, Eicher and Mico
Bosch
– Helped the company grow from a single business company to a diversified
NBFC
Mr. Rajesh K Chief Risk Officer
– Over 13 years of experience in risk management domain of consumer and
commercial lending
– Earlier worked with HSBC, First Leasing (handled commercial asset
financing), GE Money (unsecured personal loan, portfolio securitization and
auto lease) and Prime Financial (Head of Risk Policy and Analytics
Mr. Amit Gainda Head - Loan Against Properties
– Joined from GE Money, where he held the position of National Sales
Manager - Mortgages
– With over 13 years of varied experience, he manages the Loan Against
Property business which is a high growth business for the company
Mr. Sanjeev Vij
Head - Construction Equipment
Finance
– 19 years of experience in Retail Consumer Finance, SME mid-markets, and
Corporate Finance
– Will be responsible for profitably setting up and growing Construction
Equipment Finance business that would be a highly strategic revenue driver
for BAF
Mr. Devang Mody Head - Sales Finance
– Worked with GE Money, AIG and E&Y on various assignments in Six Sigma,
Sales Finance, Cross-Sell, and Personal Loans
– Turned around the sales finance business of BAF with substantial gaining
of market share
Source: Company, JM Financial.
Initiate coverage with BUY and TP of `990
Initiate coverage with BUY and TP of `990
We value BAF at 9x Mar’13 EPS (implied P/B of 1.9x), implying Mar’12 target
price of `990, upside of c.57%.
Key risks
Significant economic slowdown: Significant economic slowdown is a key risk
and could lead to slower growth and impact BAF’s earnings adversely. Further,
it may result in deterioration in asset quality and could adversely affect the
company’s profitability.
Spike in interest rates: Being a wholesale funded institution, any sustained
liquidity shock could impact spreads adversely and affect profitability.
Higher than expected credit costs: Although we have been conservative in
our credit cost assumptions, higher than expected delinquencies due
unseasoned loan book (construction equipment, LAP and infra finance) remain
a risk to our estimates.
Significant increase in competitive intensity: Any significant increase in
competition in the 2/3-wheeler and consumer durable space could impact BAF
adversely.
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