- AUM growth accelerated on the back of robust traction in disbursement
- Growth to slowdown in FY15; mix to continue to move towards SME Financing
- Spreads were impacted by change in asset mix
- Asset quality intact; credit cost to ease in FY15/16
- Valuation unlikely to go further down; recent correction should be bought into
|(Rs mn)||Q4 FY14||Q3 FY14||% qoq||Q4 FY13||% yoy|
|Total Operating Income||10,711||10,703||0.1||8,323||28.7|
|Net Interest Income||6,211||6,607||(6.0)||5,058||22.8|
|(Rs mn)||Q4 FY14||Q3 FY14||% qoq||Q4 FY13||% yoy|
|Key Ratios||Q4 FY14||Q3 FY14||chg qoq||Q4 FY13||chg yoy|
|Op Inc as % of Avg AUF||19.3||21.1||(1.9)||20.2||(0.9)|
|Int Exp as % of Avg AUF||8.1||8.1||0.0||7.9||0.2|
|NII as % of Avg AUF||11.2||13.0||(1.9)||12.3||(1.1)|
|Cost to Income (%)||47.5||44.3||3.1||45.2||2.3|
|Prov as % of Avg AUF||1.1||1.6||(0.5)||1.1||0.0|
|Gross NPA (%)||1.2||1.2||0.0||1.1||0.1|
|Net NPA (%)||0.3||0.2||0.1||0.2||0.1|
AUM growth accelerated on the back of robust traction in disbursement
Bajaj Finance’s AUM growth stood much higher than our estimate at 37% yoy and also represented growth acceleration from 33% yoy in the previous quarter. The strong asset growth performance was driven by sustained robust traction in disbursements which grew by 38% yoy in Q4 FY14. Amongst business segments, an accelerated 38% yoy disbursements growth in Consumer Financing and a sharply improved performance in Commercial Financing surprised us positively.
Within Consumer Financing, the company was successful in offsetting the impact of sustained weakness in 2w/3w financing (captive financier for Bajaj Auto with significant market share in its domestic volumes) by driving brisk growth in other products of consumer durable financing, lifestyle financing and unsecured personal loans. The above phenomenon is also reflected in 20% de-growth in the number of 2w loans disbursed and an impressive 24% yoy growth in customer addition. Disbursements in the Commercial Financing business (CE financing, infra loans and credit to Bajaj Auto’s vendors) grew by 18% yoy after having de-grown for the past many quarters. Robust disbursement growth in SME Financing business (mainly mortgages and unsecured small business loans) continued on the back of widening distribution and improving throughput from new sales channels. The disbursement mix continued to move towards the SME financing segment in-line with the company’s strategy of reducing the beta of the business.
Growth to slowdown in FY15; mix to continue to move towards SME Financing
Bajaj Finance’s asset growth is expected to slow down materially in FY15 on the back of moderation in disbursement growth in Consumer Financing owing to continued weakness in 2w/3w financing (Bajaj Auto’s domestic volume growth is unlikely to revive in the near term) and sluggishness in consumption cycle which could impact growth of other products. In the Commercial Financing business, company is unlikely to step-up growth till the investment/infra cycle improves. In SME financing though the growth could moderate a bit due to increasing base, it would still be much higher than the other two segments. Overall, we estimate 25-26% AUM CAGR over FY14-16.
Spreads were impacted by change in asset mix
Based on our computation, blended lending yield compressed materially both on qoq and yoy basis. While the sequential decline is a seasonal phenomenon due to lower contribution of higher-yielding Consumer Financing business, the yoy contraction in lending yield is attributable to the shift in business mix based on execution of the risk moderation strategy. The cost of funding is estimated to have remained firm during the quarter. As we expect the business mix to continue to shift towards SME financing, NIMs are likely to trend down over the next couple of years.
Asset quality intact; credit cost to ease in FY15/16
Barring the slippage of ~Rs250mn infra account, the asset quality was rock-solid especially in the Consumer and SME financing segments. Bajaj Finance’s asset quality has been stable over the past two years despite deterioration in the external environment. This is attributable to its strong processes across origination, underwriting and collection. Its Net NPAs at 0.28% are amongst the lowest in the NBFC industry. Credit cost was materially lower in Q4 FY14 (1.1%) as compared to the previous quarter (1.6%) in the absence of accelerated provisioning with ~95% of the portfolio shifted to it by the end of Q3 FY14. Asset quality is expected to remain sanguine in coming quarters which should drive moderation in credit cost.
Valuation unlikely to go further down; recent correction should be bought into
We estimate Bajaj Finance’s RoA to inch downwards over the next couple of years and thereafter settle in an above-average band of 3-3.2%. The stock correction over the past few days provides an opportune entry point to long-term investors as valuation vis-à-vis the projected profitability delivery is very attractive at 1.6x FY16 P/ABV. We retain our positive stance on the company and 9-12 month target of Rs2,003.
|Y/e 31 Mar (Rs m)||FY13||FY14||FY15E||FY16E|
|Total operating income||19,057||25,001||30,677||38,006|
|yoy growth (%)||33.7||31.2||22.7||23.9|
|Operating profit (pre-prov)||10,534||13,490||16,058||19,732|
|yoy growth (%)||45.5||21.6||21.0||24.4|
|Dividend yield (%)||0.9||0.9||1.2||1.4|