Riding high on growth
Bajaj Finance (BFL) reported net profit of Rs 138.7 cr (52.4% YoY) in Q1FY13 exceeding the expectations. Loan losses and provisions for Q1FY13 declined 20.6% QoQ and 6.4% YoY. Asset quality remained healthy during the quarter with gross NPA declining by 6 bps and Net NPA declining by 2 bps.
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Net interest income witnesses robust growth
Net Interest Income increased 47.2% YoY and 18.7% QoQ to Rs 403 cr in Q1FY13 resulting from the strong growth in disbursements. The benign competitive environment coupled with stable demand helped the company to protect its margins despite a tough economic scenario.
Growth momentum in disbursements continues
Disbursements continued to witness momentum with a growth of 12.4% QoQ and 31.8% YoY to Rs 4,728 cr. The company’s Consumer business segment benefited mainly due to high replacement demand for ACs, benign competition and high entry barriers. The company’s SME business continued to grow in a healthy manner due to company’s sharp focus on customer segmentation. Construction equipment business declined due to the company’s cautious stance on the sector as a whole.
Strong growth in asset under management
Asset under management grew by 60.5% YoY and 10.5% on QoQ basis at Rs 14,485 cr. Management expects its Assets Under Management (AUM) to grow 25-30% in FY13E. Number of new customer acquired stood at 752,231 in Q1FY13 vs. 543,092 in Q1FY12, a growth of 38.5%.
Continues to maintain best in class asset quality
Gross NPAs declined by 6 bps on QoQ basis to 1.1% and net NPAs declined by 2 bps on QoQ basis to 0.1% thereby indicating an improvement in the company’s asset quality. The asset quality across all business except Construction Equipment remained steady in Q1FY13.
Valuation & Recommendation
We had recommended BFL on 13th July 2011 at Rs 686 with an initial target price of Rs 806 which was achieved. We further upgraded the target price to Rs 1,022 in our Q4FY12 update dated 18th May 2012 and the stock is currently trading near our target price generating 47.2% return over the period.
As BFL commands market leadership we believe that it will demand premium valuations going forward. Moreover, the gap between the valuations of Bajaj Finance as compared with the larger players in the NBFC space has been narrowing resulting from the steady and consistent performance of the company. Consequently, we have revised our target multiple for the stock from 1.8x to 2x on FY13E ABV (which is in line with its peer group) and arrive at a target price of Rs 1,170 indicating further upside of 18% from current levels.
At CMP the stock is trading at 1.69x FY13E ABV and 1.38x FY14E ABV and 7.98x FY13E and 6.52x FY14E EPS.
Net interest income witnesses robust growth
Net Interest Income increased 47.2% YoY and 18.7% QoQ to Rs 403 cr in Q1FY13 resulting from the strong growth in disbursements both on QoQ and YoY basis as Q1 is a seasonally strong quarter. The growth in disbursements stood at 12.4% QoQ and 31.8% YoY to Rs 4,728 cr in Q1FY13. The benign competitive environment coupled with stable demand helped the company to protect its margins despite a tough economic scenario. However, other operating income witnessed a flattish growth on YoY basis (+2.9% YoY) and declined 23.9% on QoQ basis to Rs 34.3 cr in Q1FY13.
Growth momentum in disbursements continues
Disbursements continued to witness momentum with a growth of 12.4% QoQ and 31.8% YoY to Rs 4,728 cr. The company’s Consumer business increased 45.1% QoQ and 48.4% YoY registering a strong growth for the company. The consumer segment benefited mainly due to high replacement demand for ACs, benign competition and high entry barriers. The market share of the company improved from 11% in FY12 to 12.5% in Q1FY13.
The company’s SME business (Mortgages, Business Loans and Loans against securities) continued to grow in a healthy manner (+20.3% QoQ and 45.0% YoY) due to company’s sharp focus on customer segmentation. The company is now among the top 4 new loan originators in loans against property and business loans in India.
Construction equipment business declined 38.9% QoQ and 13.9% YoY to Rs 774 cr due to the company’s cautious stance on the sector as a whole. The company did not witness any new sanctions in infra financing business in Q1FY13 whereas for vendor financing it was a stable quarter. However, Management continues to have confidence in the vendor financing space resulting from its focus on the top 50 Bajaj Auto Vendors. Owing to strong disbursements, loan book (receivables under financing activity) increased by 61% YoY to Rs 13,750 crs.
Valuation and Recommendation
Bajaj Finance continues to enjoy pricing power resulting from the benign competition and healthy asset quality. The company has been consistently delivering healthy performance which is commendable given the current environment. BFL is well positioned to deliver sustainable and profitable growth which is scalable with lower risk.
Given the market leadership which the company commands we believe that the stock will demand premium valuations going forward. Moreover, the gap between the valuations of Bajaj Finance as compared with the larger players in the NBFC space has been narrowing resulting from the steady and consistent performance of the company. Based on this we have revised our target multiple for the stock from 1.8x to 2x on FY13E Book Value (which is in line with its peer group) and arrive at a target price of Rs 1, 170 indicating potential upside of 18% from current levels.
We believe present valuations of 1.69x FY13E ABV and 1.38x FY14E ABV and 7.98x FY13E and 6.52x FY14E EPS are extremely attractive given the stro
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