Q4FY14 Result: Bajaj Finance continues to reap the benefits of healthy consumer demand, buy - Motilal Oswal
1. 14 May 2014
4QFY14 Results Update | Sector: Financials
Sunesh Khanna (Sunesh.Khanna@MotilalOswal.com) + 91 22 3982 5521
Alpesh Mehta (Alpesh.Mehta@MotilalOswal.com); +91 22 3982 5415
BSE SENSEX S&P CNX
CMP: INR1,808 TP: INR2,018 Buy23,815 7,109
Bloomberg BAF IN
Equity Shares (m) 50.1
M.Cap. (INR b) / (USD b) 90.7/1.5
52-Week Range (INR) 1,910/966
1, 6, 12 Rel. Per (%) -3/10/10
Financials & Valuation (INR Billion)
Y/E MAR 2014 2015E 2016E
NII 22.2 27.9 34.7
PPP 13.5 16.5 20.5
PAT 7.2 8.4 9.9
EPS (INR) 143 167 198
EPS Gr. (%) 21 16 19
BV/Sh.(INR) 796 935 1,101
RoA (%) 3.4 3.0 2.9
RoE (%) 19.5 19.2 19.5
P/E (x) 12.6 10.9 9.1
P/BV (x) 2.3 1.9 1.6
Bajaj Finance (BAF) 4QFY14 PAT stood at INR1.82b, up 11% YoY and down 6%
QoQ, (15% below est. of INR2.1b). NIM decline of 100bp YoY (NII 10% below est.)
was driven by a shift in loan mix towards low yielding mortgage assets. Further,
continued investments into new lines of business led to higher opex (6% above
est.) and impacted PAT.
AUM growth remained strong (up 37% YoY and +7% QoQ) at INR240.6b, driven by
a robust +52% YoY in SME segment and +32% growth in consumer business.
Commercial segment (CE and short term infrastructure loans) de-grew 7% YoY.
Asset quality remained healthy, with GNPAs/NNPAs at 1.18/0.28% (up 3/5bp
QoQ); marginal uptick was due to a corporate slippage of INR250m. Adjusting for
the same, GNPAs/NNPAs were stable QoQ.
Other highlights: 1) BAF has created a liquidity buffer of INR6b and will maintain
surplus cash of 5% of liabilities, 2) lifestyle business is gaining momentum, while
rural lending has also picked up on a strong note and 3) BAF has 95% of the loan
book at 90dpd (only CE and Infrastructure on 180dpd).
Valuation and view: BAF continues to reap the benefits of healthy consumer
demand and is among the few companies doing well in this space. Despite the
fragile macro environment, it continues to have one of the best asset quality.
While BAF continues to increase its market share in the consumer business, higher
share of incremental growth will be driven by low yielding mortgage business,
whereas continued investment in franchisees will result in higher opex; factoring
moderation in yields and higher opex, we reduce FY15E/16E PAT by 5/6%. We
expect RoA/RoE to remain strong at 3%/19.5% during FY15-16E. We maintain a
Buy rating with a target price of INR2,018 (1.8x FY16E BV of INR1,101).
Investors are advised to refer through disclosures made at the end of the Research Report.
2. 14 May 2014 2
Quarterly Performance v/s Estimates and reasons for deviations (INR m)
Y/E March 4QFY14E 4QFY14A Var (%) Comments
Income from operations 10,557 10,032 -5
Other Operating Income 583 679 16
Operating Income 11,141 10,711 -4
Shift in loan mix towards low yielding assets led to
decline in NIMs
YoY Growth (%) 33.9 28.7
Interest expenses 4,276 4,501 5
Net Income 6,865 6,211 -10 100bp YoY decline in margins led to below est NII
YoY Growth (%) 35.7 22.8
Total Income 6,925 6,450
Operating Expenses 2,900 3,061 6
Continued investment in new business led to
Operating Profit 4,025 3,389 -16
YoY Growth (%) 42.0 19.6
Provisions and Cont. 763 622 -19 Stable asset quality
Profit before Tax 3,263 2,768 -15
Tax Provisions 1,126 947 -16
Net Profit 2,136 1,821 -14.8 Lower NII & higher opex led to below est. PAT
YoY Growth (%) 30.4 11.2
Loan Growth (%) 36.0 37.2
Cost to Income Ratio (%) 42.2 49.3
Tax Rate (%) 33.5 33.5
Source: Company, MOSL
SME segment drives AUM growth but drags margins
AUM growth remained strong (up 37% YoY and 7% QoQ) at INR240.6b; driven
by a robust +52% YoY in SME business (Mortgage, LAP & BL) and +32% growth in
Consumer businesses (Consumer electronics, 2 Wheelers & personal loans)
while commercial segment which consists on construction equipment and short
term infrastructure loans de-grew +7% YoY.
While consumer loans generate yields of ~24% the blended yield from SME
segment is ~13%; rising share of SME segments (53% of AUM up 100bp QoQ and
700bp YoY) in overall AUM impacted the yields leading to 100bp YoY decline in
margins to 10.7%.
Disbursements grew by 38% YoY to INR70b led by +43% YoY growth in SME
segment and +38% growth in consumer segment while the disbursements in the
commercial segment have been declining since last eight quarter registered
growth of 16.3% YoY.
Asset quality remains healthy; PCR declines 400bp QoQ to 76%
Asset quality was stable with GNPA/NNPA stood at 1.18%/0.28% were up 3/5bp
QoQ; marginal increase in NPAs was due to a corporate slippage of INR250m;
adjusting for same GNPA/NNPA were stable both QoQ.
Provisioning expenses for the quarter stood at INR622m v/s INR795m in
3QFY14, BAF now has 95% of loan book at 90dpd (Only CE & Infrastructure on
180dpd). PCR declined 400bp QoQ but continues to remain healthy at 76%.
Valuation and view
BAF continues to reap the benefits of the consumer finance boom and is among
the few companies doing well in this space; it also continues to enjoy pricing
power amidst benign competition in consumer segment. Despite the fragile
Shift in loan mix towards
low yielding mortgage
assets impacts margins
Continued investment into
franchise led to higher opex
3. 14 May 2014 3
macro environment BAF continues to have one of the best asset quality among
the peer group. Strong core operating performance and faster-than-expected
turnaround in operations demonstrate the management's superior execution
skills. Superior margins, focused fee income strategy and control over cost ratio
will keep core operating profitability strong.
While BAF continues to increase its market share in the consumer business,
higher share of incremental growth will be driven by low yielding mortgage
business, whereas continued investment in franchisees will result in higher
opex; factoring moderation in yields and higher opex, we reduce FY15E/16E PAT
by 5/6%. We expect RoA/RoE to remain strong at over 3%/20% during FY14-16E.
We maintain a Buy rating with a target price of INR2,018 (1.8x FY16E BV of
One year forward P/BV
PB (x) Avg(x) Median(x)
One year forward P/E
PE (x) Avg(x) Median(x)
We downgrade our FY15/16 estimates by 5% to factor lower margins and higher opex
INR B Old Est. New Est. % Chg
FY15E FY16E FY15E FY16E FY15E FY16E
NII 31 38 30 37 -1 0
Other Income 0 0 0 0 0 0
Total Income 31 38 31 38 -1 0
Operating Expenses 14 16 14 17 4 5
Operating Profits 17 21 16 21 -4 -4
Provisions 4 6 4 5 -9 -6
PBT 13 16 13 15 -3 -3
Tax 4 5 4 5 2 1
PAT 9 11 8 10 -5 -6
Loans 291 364 292 365 0 0
Borrowings 242 302 245 303 1 0
Credit Cost 1.3 1.6 1.2 1.4 -6 -10
RoA 3.2 3.1 3.0 2.9 -7 -6
RoE 20.3 20.5 19.2 19.5 -5 -5
Source: Company, MOSL
8. 14 May 2014 8
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Disclosure of Interest Statement Bajaj Finance
1. Analyst ownership of the stock No
2. Group/Directors ownership of the stock No
3. Broking relationship with company covered No
4. Investment Banking relationship with company covered No
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