BAF’s Q3FY23 profit of Rs29.7bn was largely in line with estimates, as lower opex was offset by higher provisions. Healthy AUM growth, stable margins QoQ, improvement in operating efficiency and further improvement in asset quality were key positives. In terms of customer additions and new loans booked, BAF had a strong quarter with highest-ever figures achieved for both - 3.14mn customers added and 7.84mn new loans booked in Q3FY23. On the flip side, lower growth in the mortgage segment was a drag on the overall performance.
The quarter was characterised by: i) Healthy AUM growth (6% QoQ / 27% YoY), albeit lower than prior quarters ii) Stable NIM QoQ (13.2% calculated) iii) Sequential improvement in cost-to-income ratio (~120bps to 34.7%) iv) Slight improvement in asset quality (GNPA ratio improved 3bps QoQ to 1.14%). PCR was strengthened by ~200bps QoQ to 64%. Restructured book declined to Rs2.67bn (0.12% of AUM). Credit cost in the quarter was 1.5% of AUM. BAF expects to end FY23 with provisions at 1.4-1.5% of average assets.
Analysts at IIFL Securities decrease the AUM growth estimates marginally to ~24% Cagr over FY22-25, which should be aided by BAF’s digital initiatives and franchise expansion, and maintain NIM estimates too. Opex estimates have been decreased by ~1% over FY23-25, as analysts build in better operating efficiency. This is offset by higher provisions in FY23. Credit cost estimates stand at ~1.5% over FY23-25. Overall earnings are cut by 1.0/0.7/0.8% for FY23/24/25.
Management remains confident of adding 10-11mn customers in FY23, and AUM is expected to double in the next 3-3.5 years. While competitive intensity across products remains elevated, BAF’s ability to maintain margins is a key positive. Despite the overall business trajectory remaining strong, valuations are expensive at 5.3/4.3x FY24/25ii BVPS. BAF’s entry into the credit card business on its own balance sheet would remain a monitorable.
Analysts at IIFL Securities maintain Add with target price of Rs 6550.
