Bajaj Finance Ltd - Going Strong; Result Update Q2FY15 :: Edelweiss PDF link

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Bajaj Finance Limited (BFL) has yet again reported strong set of numbers in Q2FY15. The company’s AUM grew 41% YoY, from INR 19,829 cr in Q2FY14 to INR 28,004 cr in Q2FY15. PAT increased to INR 197 cr in Q2FY15 from INR 166 cr in Q2FY14, representing a growth of 18% YoY. Traction in both Consumer and SME businesses in Q2FY15 was strong, with disbursement growth of 51% and 55% YoY, respectively. Looking at the strong numbers and superior asset quality, we maintain our bullish stance on the stock from a long-term perspective.

Strong loan growth

During Q2FY15, BFL’s AUM increased by 41% YoY from INR 19,829 cr in Q2FY14 to INR 28,004 cr in Q2FY15. Consumer Finance and SME businesses continue to report robust growth but degrowth in the Commercial Loan segment persists. The company will wind down its Construction Equipment Lending business by Q2FY16 due to unfavorable risk adjusted returns. The key growth vectors going forward will be new product lines and expanding distribution network. In addition, the company is forming a wholly-owned housing finance subsidiary.

Return ratios to stabilize

For FY15, we expect BFL to report RoE of 19.5%. However, growth in infra commercial book will continue to remain low. The commercial book has shrunk from 19% of AUM in FY12 to 6% currently. The rural lending business has become profitable. The company is planning to launch rural lending business in Q1FY16. BFL will try to maintain a balance between profitability and growth, with the consumer book driving profitability while the non-consumer book will provide scale.

Best-in-class asset quality

BFL reported best-in-class asset quality with gross NPA of 1.41% and net NPA of 0.48% in Q2FY15. The provision coverage ratio stood at 66% in Q2FY15 (77% in Q2FY14). The uptick in NPA is due to one INR 50 cr infra account turning into NPA. Adjusted for the same, the NPA ratios are flat QoQ. The company’s long-term sustainable net NPA ratio is expected to be 40-50 bps.

Efficient operation

BFL has been steadily increasing the geographic presence. The rural financing business has seen strong traction with presence in 151 locations currently from nil two years back. In addition, the lifestyle financing distribution network has increased from 850 in FY13 to 2000 currently. Despite the branch expansion, the company has been able to keep costs under control with cost–to-income ratio of 45.7% currently (47.7% in Q2FY14).

Shift in funding mix

Bank borrowings constituted 53% of BFL’s total borrowings. The company started raising money via fixed deposits from last year. BFL raised INR 96 cr of fixed deposits during the quarter. Fixed deposits constitute 2% of total borrowings. The ratio of fixed deposits is expected to increase gradually.

Capital raising plan

Currently, the capital adequacy ratio is at 19.30% with Tier-I and Tier-II ratio at 15.1% and 4.3% respectively. During the quarter, the company raised Tier II capital of INR 453 cr. The company will be raising cash at the beginning of the next fiscal year.

LINK
https://www.edelweiss.in/research/Bajaj-Finance-Ltd--Going-Strong;-Result-Update-Q2FY15/10005058.html