“We are downgrading Bajaj Finance to Underperform. This is in line with our view, that unsecured consumer finance business models would become challenging in the current pandemic environment. At the current early stage of COVID19 outbreak in India, it is uncertain to project how long the physical restrictions from the government would last beyond the 21-days imposed lockdown. At this stage, it would be conservative to assume that first quarter of FY2021 would be a near-complete economic freeze and a crawling recovery post that,” Bernstein said in its report.
We believe Bajaj is a risk-conscious organization, which will react by refocusing on collections, risk containment and liquidity management. We expect FY21 to be a year of consolidation with loan growth recovering marginally only in the second half of FY2021. As things stand now, we estimate the loan growth to be 8% yoy for the FY2021 vs. 35% yoy run rate. As Bajaj loan growth comes to a grinding halt, we expect credit costs to escalate by 100 bps (2.7% for FY2021W vs. 1.7% for FY'20). We expect SME loans (13% of the loan book) and Consumer B2C loans (27% of total loans) to be at risk of delayed collections. Within B2C consumer loans, self-employed personal loans could be vulnerable,” Bernstein added.
The stock is currently trading at Rs2,314.10, down by Rs232.35 or 9.12% from its previous closing of Rs2,546.45 on the BSE.