Bajaj Finance Ltd - Going Strong; Result Update Q3FY15 :: Edelweiss report

Please Share::

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

��

-->

Bajaj Finance Limited (BFL) has yet again reported strong set of numbers in Q3FY15. The company’s AUM grew 37% YoY, from INR 22,461 cr in Q3FY14 to INR 30,822 cr in Q3FY15. PAT increased to INR 258 cr in Q3FY15 from INR 194 cr in Q3FY14, representing a growth of 33% YoY. Traction in both Consumer and SME businesses in Q3FY15 was strong, with AUM growth of 32% and 46% 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 Q3FY15, BFL’s AUM increased by 37% YoY from INR 22,461 cr in Q3FY14 to INR 30,822 cr in Q3FY15. Consumer Finance and SME businesses continue to report robust growth but de-growth 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 company is one of the largest financiers of Apple and Samsung phones (premium category). The key growth vectors going forward will be new product lines and expanding distribution network. In addition, BFL will start wealth management business from Q2FY16.

Return ratios to stabilize

For FY15, we expect BFL to report RoE of 19.6%. 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 MSME 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 1.50% and net NPA of 0.49% in Q3FY15. The provision coverage ratio stood at 68% in Q3FY15 (66% in Q2FY15). Despite the challenging environment, the company has been able to keep NPA’s under control. 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 175 locations currently from nil two years back. In addition, the lifestyle financing distribution network has increased from 850 in FY13 to 4000 currently. Despite the branch expansion, the company has been able to keep costs under control with cost-to-income ratio of 48% currently.

Shift in funding mix

Bank borrowings constituted 47% of BFL’s total borrowings (53% in Q2FY15). The company started raising money via fixed deposits from last year. BFL raised INR 189 cr of fixed deposits during the quarter. Fixed deposits constitute 3% of total borrowings. The ratio of fixed deposits is expected to increase gradually.

Capital raising plan

Currently, the capital adequacy ratio is at 18.70% with Tier-I and Tier-II ratio at 14.7% and 4.0% respectively. The company might be raising cash at the beginning of the next fiscal year.

LINK
https://www.edelweiss.in/research/Bajaj-Finance-Ltd--Going-Strong;-Result-Update-Q3FY15/10005434.html