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Bajaj Finance
No niche expertise, lower profitability indicated; Sell
Given the high interest rates, slowing economy and changed loan mix,
we expect Bajaj Finance’s loan growth to slow and margins to decline
from FY13. Higher slippage and credit costs are likely to result in lower
profitability in FY13/14 than in FY12. We prefer stocks with niche
expertise that justifies their premium valuations over banks. We initiate
coverage on Bajaj Finance, with a Sell rating and a price target of `712.
Loan growth to moderate; margins to fall. Bajaj Finance grew its loan
book 4x from Mar ’09 to Sept’ 11. However, we expect loan growth to
decelerate from FY13, due to the slowing economy and high interest rates.
In addition, we expect margins to fall due to higher borrowing costs in
FY12 and to remain flat in FY13/14 due to the NBFC’s altered loan-mix
favouring lower-yield infra loans and loans against property. We estimate
26% CAGR in NII in FY13/14, against 56% CAGR over FY08-12.
Slippages to rise; high credit cost to drag down profitability. Bajaj
Finance has huge exposure to high-risk segments: two-/three-wheeler
loans (~23% of loans) and consumer-durable and personal loans (17%).
In case of default, recovery chances are low for +40% of loans. We
estimate 3% rise in slippages in FY13/14 against -1.5% over Mar ’09-Sep
’11. We also expect a ~250-bp drop in RoE over FY13/14 from FY12.
No niche expertise; better value elsewhere. With no niche expertise,
Bajaj Finance focuses on a variety of products. In general, niche expertise
gives NBFCs an edge over banks, which justifies their premiums. In nonbanking
finance, we prefer companies that have penetrated under-banked
regions in India and built a superior model in the last 2-3 decades.
Valuation. At our target price, the stock trades at a PBV of 1.5x FY12e
and 1.2x FY13e. Risk: Higher-than-expected economic growth could
increase loan growth and reduce NPA.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bajaj Finance
No niche expertise, lower profitability indicated; Sell
Given the high interest rates, slowing economy and changed loan mix,
we expect Bajaj Finance’s loan growth to slow and margins to decline
from FY13. Higher slippage and credit costs are likely to result in lower
profitability in FY13/14 than in FY12. We prefer stocks with niche
expertise that justifies their premium valuations over banks. We initiate
coverage on Bajaj Finance, with a Sell rating and a price target of `712.
Loan growth to moderate; margins to fall. Bajaj Finance grew its loan
book 4x from Mar ’09 to Sept’ 11. However, we expect loan growth to
decelerate from FY13, due to the slowing economy and high interest rates.
In addition, we expect margins to fall due to higher borrowing costs in
FY12 and to remain flat in FY13/14 due to the NBFC’s altered loan-mix
favouring lower-yield infra loans and loans against property. We estimate
26% CAGR in NII in FY13/14, against 56% CAGR over FY08-12.
Slippages to rise; high credit cost to drag down profitability. Bajaj
Finance has huge exposure to high-risk segments: two-/three-wheeler
loans (~23% of loans) and consumer-durable and personal loans (17%).
In case of default, recovery chances are low for +40% of loans. We
estimate 3% rise in slippages in FY13/14 against -1.5% over Mar ’09-Sep
’11. We also expect a ~250-bp drop in RoE over FY13/14 from FY12.
No niche expertise; better value elsewhere. With no niche expertise,
Bajaj Finance focuses on a variety of products. In general, niche expertise
gives NBFCs an edge over banks, which justifies their premiums. In nonbanking
finance, we prefer companies that have penetrated under-banked
regions in India and built a superior model in the last 2-3 decades.
Valuation. At our target price, the stock trades at a PBV of 1.5x FY12e
and 1.2x FY13e. Risk: Higher-than-expected economic growth could
increase loan growth and reduce NPA.
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