Bajaj Finance 110314 - India Infolinecontent.indiainfoline.com/.../Bajaj_Finance_110314.pdf ·...

Sector: Financials

Sector view: Positive

Sensex: 21,934

52 Week h/l (Rs): 1,678/966

Market cap (Rscr) : 8,375

6m Avg vol (‘000Nos): 34.8

Bloomberg code: BAF IN

BSE code: 500034

NSE code: BAJFINANCE

FV (Rs): 10

Price as on Mar 10, 2014

Company rating grid

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1 2 3 4 5

Earnings Growth

RoA Progression

B/S Strength

Valuation appeal

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Feb‐13 Jun‐13 Sep‐13 Jan‐14

BFL Sensex

Share holding pattern

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Others Institutions Promoters

%

Rating: BUY Target (9‐12 months): Rs2,003

CMP: Rs1,670

Upside: 19.9%

Company Report March 11, 2014

Research Analyst: Rajiv Mehta

[email protected]

Bajaj Finance Ltd.

Initiating Coverage

A franchise to own One of the most diversified, profitable and fastest growing NBFCs Aided by product additions and network expansion, Bajaj Finance has witnessed robust asset CAGR of 48% over the past three years. Profitability too has been very impressive with average RoA delivery at ~3.8%. Given its diversified product offerings, Bajaj Finance would continue to materially outpace industry growth. Though the overall disbursement growth could moderate a bit due to de‐emphasis on commercial lending and consolidation in consumer financing, the asset growth is estimated to remain sturdy driven by robust disbursement growth in SME financing and increasing duration of the overall loan book. We estimate FY13‐16 AUM CAGR at 31%.

Shift in asset mix to moderate RoA but risk also Bajaj Finance’s above‐average NIM profile is underpinned by large proportion of high‐yield products in its portfolio and competitive cost of funding given a strong rating profile. NIM correction seen in recent quarters would continue with an accelerated shift in asset mix towards mortgages (SME financing). Though cost growth is likely to moderate, the contraction in margin would preclude any improvement in cost/income ratio. Bajaj Finance’s asset quality has been stable over the past two years despite deterioration in the external environment. Despite transition to 90‐day provisioning policy, credit cost has been contained at 1.1‐1.6%. While business landscape is expected to remain soft in the near term, company’s asset quality is unlikely to surprise negatively. RoA would moderate due to shift in business mix towards low‐beta products.

Initiate coverage with Buy rating; Top Pick in NBFC space Over the past four years, Bajaj Finance has traded in a narrow valuation band supported by its consistent performance on growth and profitability. With the company expected to deliver average 3.5% RoA over FY13‐16, current valuation at 1.7x 1‐yr fwd P/ABV appears extremely attractive. Apart from the risk‐return trade‐off and a surprise banking license win, we don’t see any exogenous factors impacting the profitability over the next couple of years. Bajaj Finance, hence, is our Top Pick in the NBFC space. Initiate coverage with 9‐12 month price target of Rs2,003.

Financial summary Y/e 31 Mar (Rs m) FY13 FY14E FY15E FY16E

Total operating income 19,057 25,658 31,861 39,472

Yoy growth (%) 33.7 34.6 24.2 23.9

Operating profit (pre‐provisions) 10,534 14,237 17,470 21,627

Net profit 5,913 7,775 9,327 11,425

yoy growth (%) 45.5 31.5 20.0 22.5

EPS (Rs) 118.8 156.2 187.4 229.5

Adj. BVPS (Rs) 669.8 798.0 940.9 1,125.0

P/E (x) 14.1 10.7 8.9 7.3

P/Adj.BV (x) 2.5 2.1 1.8 1.5

ROE (%) 21.9 21.0 21.1 21.5

ROA (%) 3.8 3.8 3.5 3.3

CAR (%) 22.0 19.7 18.1 16.6 Source: Company, India Infoline Research

Bajaj Finance Ltd.

2

Bajaj Finance - one of the most diversified, profitable and fastest growing NBFCs Bajaj Finance, incorporated in 1987, is a subsidiary of Bajaj Finserv Ltd, the financial services arm of the Bajaj group. Registered with RBI as a systemically important deposit‐taking non‐banking finance company, Bajaj Finance initially provided loans for two and three wheelers manufactured by the group company Bajaj Auto. Since 2007, Bajaj Finance has entered into other lending segments, and has become one of the most diversified asset financing company. Its broad product suite now includes nine business lines across the three financing segments of Consumer (40%), SME (52%) and Commercial (8%). Consumer financing includes 2w/3w financing for Bajaj Auto, consumer durable loans and unsecured personal loans (cross‐sell and for salaried individuals). SME financing segment largely comprises mortgages (pre‐dominantly LAP), LAS and unsecured small business loans. The relatively small Commercial financing segment represents construction equipment financing, infra loans and credit to Baja Auto’s vendors. Overall, the secured/unsecured loan mix is 82:18.

Aided by product additions and network expansion, Bajaj Finance’s AUM has witnessed a robust growth of 48% pa over the past three years, making it one of the fastest growing NBFCs. Profitability too has been very impressive with elevated RoA delivery of 3.8‐4%. With AUM at Rs225bn as the end of December 2013, Bajaj Finance has achieved significant scale. Group Structure

Source: Company, India Infoline Research

Since 2007, Bajaj Finance has evolved as one of the most diversified NBFCs Product suite now includes nine business lines across three financing segments Secured:unsecured loan mix is 82:18 Robust asset growth of 48% pa over the past three years; RoAs too has been very impressive

100% 74% 74% 69.99%

31.49% 39.16%

Bajaj Holdings and Investment Limited (Listed)

Bajaj Auto Limited (Listed)

Bajaj Finserv Limited (Listed)

Bajaj Finance Limited (Listed)

Bajaj Allianz Life Insurance

Company Limited

Bajaj Allianz General Insurance Company Limited

Bajaj Financial Solutions Limited

Auto Business Arm Financial Services Arm

Lending

Protection and Retirals

Wealth Management and Advisory

Bajaj Finance Ltd.

3

Segmental AUF (Assets under finance) Mix AUF Mix by nature of the loan

40.0%

52.0%

8.0%

Consumer Finance SME Finance Commercial Finance

82%

18%

Secured Unsecured


Disbursement growth has been resilient Disbursement Mix has moved away from Commercial segment

0

20

40

60

80

Q1 FY12

Q2 FY12

Q3 FY12

Q4 FY12

Q1 FY13

Q2 FY13

Q3 FY13

Q4 FY13

Q1 FY14

Q2 FY14

Q3 FY14

(%)

51 4957

4555 51

32 3329

4134 37

16 19 14 14 11 12

0%

20%

40%

60%

80%

100%

Q1 FY13 Q2 FY13 Q3 FY13 Q4 FY13 Q1 FY14 Q2 FY14

Commercial SME Retail


Diversified product bouquet


Consumer SME Commercial

Consumer Durable Financing

Mortgage – LAP &HL

Construction Equipment Finance

Lifestyle Financing Loan

Against Securities

Infrastructure Finance

2 & 3 Wheeler Finance

Small Business Loans

Secured Auto Component Finance

Personal Loan Cross Sell

Salaried Loan

Cross Sell – Life/General Insurance, Extended Warranty, Credit Card, Credit Rating

Product

Bajaj Finance Ltd.

4

Strong pace of AUM accretion Persistently superior RoA delivery

0

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40

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250

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Q2 FY12

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(Rs Bn)

AUM (LHS) Yoy growth (RHS)

(%)

1.0

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5.0

Q1 FY11

Q2 FY11

Q3 FY11

Q4 FY11

Q1 FY12

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(%)


Growth traction visible in number of loans disbursed

0

200

400

600

800

1000

Q1 FY11

Q2 FY11

Q3 FY11

Q4 FY11

Q1 FY12

Q2 FY12

Q3 FY12

Q4 FY12

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Q2 FY13

Q3 FY13

Q4 FY13

Q1 FY14

Q2 FY14

Q3 FY14

(in '000)


Bajaj Finance Ltd.

5

Bajaj Auto ‐ 2W volume growth has been weak Bajaj Auto – 3W volume growth has collapsed

(30)

0

30

60

90

Jun‐10

Sep‐10

Dec‐10

Mar‐11

Jun‐11

Sep‐11

Dec‐11

Mar‐12

Jun‐12

Sep‐12

Dec‐12

Mar‐13

Jun‐13

Sep‐13

Dec‐13

(%)

(50)

(25)

0

25

50

Jun‐10

Sep‐10

Dec‐10

Mar‐11

Jun‐11

Sep‐11

Dec‐11

Mar‐12

Jun‐12

Sep‐12

Dec‐12

Mar‐13

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Sep‐13

Dec‐13

(%)

Source: SIAM, India Infoline Research

Consumer financing business - growth to moderate Bajaj Finance is the largest 2w financier in the country focused on semi urban and rural market with a market share of ~20%. It contributes to ~30% of Bajaj Auto’s domestic two wheeler sales. The 2w book of the company has been de‐growing through the current fiscal due to sharp slowdown in domestic sales for Bajaj Auto. The medium term growth outlook remains weak as the demand for two wheelers is anticipated to remain muted. However, the 3w financing business continues to grow at healthy pace acting as a reasonable hedge to the de‐growth in 2w business. Bajaj Finance’s market share in Bajaj Auto’s three wheeler sales has increased from 4‐5% 2‐3 years ago to 21‐22% currently. The company has presence at 138 key 3w dealers of Bajaj Auto across 16 states. Combined 2w/3w financing constitutes about 18% of the assets under finance (AUF). The interest rate charged by Bajaj Finance is 24‐26% with LTV ranging 65‐80% and for tenure of 2‐3 years.

For Bajaj Finance, growth in new 2w loans disbursed has turned negative

(30)

(15)

0

15

30

45

Q4 FY11

Q1 FY12

Q2 FY12

Q3 FY12

Q4 FY12

Q1 FY13

Q2 FY13

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Q2 FY14

Q3 FY14

(%)


Largest 2w financier in the country; medium term growth outlook remains weak 3w financing business continues to grow at healthy pace

Bajaj Finance Ltd.

6

Disbursement growth in Consumer Financing has been resilient despite slowdown in 2w financing

Disbursement growth to moderate going; segmental share to decline

10

20

30

40

50

Q1 FY13 Q2 FY13 Q3 FY13 Q4 FY13 Q1 FY14 Q2 FY14 Q3 FY14

(%)

30

33

36

39

42

45

0

10

20

30

40

50

FY12 FY13 FY14E FY15E FY16E

(%)

Disb growth yoy (LHS) Share in AUF (RHS)

(%)


Focused on affluent consumers and high‐value products, Bajaj Finance is the largest consumer electronics lender in India. It has a market share at ~14% in consumer electronics finance and substantial market share of ~20% and ~30% in LCD TV and LED TV market respectively. The average ticket size is around Rs27,000‐28,000 and loan tenure is 7‐8 months. Recently, the company forayed into lifestyle financing ie funding purchases of furniture, modular kitchens, digital lifestyle products, etc. Bajaj Finance has tied‐up with several lifestyle brands and the average ticket size is much higher than in consumer durable financing. Both, consumer durable and lifestyle financing has been growing at strong pace driven by rapid network expansion. Widened distribution should continue to drive sturdy growth in these products notwithstanding slowdown in the underlying industry. Bajaj Finance typically charges 0% interest to the borrowers on the funded value (65‐70%) but earns 1‐2% processing fees and a sizeable subvention from the manufacturers.

The consumer durable and lifestyle financing business acts as a customer acquisition engine and Bajaj Finance cross sells other products to the credit tested customers. The company provides an EMI card (Existing Membership Card) to all its consumer durable customers that enables them to avail quick credit for future purchases. There are about 1.3mn such cards in force currently. Bajaj Finance has a dedicated channel for cross‐selling personal loans to its consumer durable and lifestyle customers which has been driving brisk growth of this portfolio.

Overall, we expect disbursement growth in the consumer financing segment to moderate further in FY15 due to sustained weakness in 2W disbursements.

Largest consumer electronics lender in India; recently, the company forayed into lifestyle financing Consumer durable and lifestyle financing business acts as a customer acquisition engine

Bajaj Finance Ltd.

7

Disbursement growth in SME Financing has strengthened in recent quarters

Disbursement growth to accelerate and segmental share to rise sharply

0

25

50

75

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125


(%)

30

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46

54

62

70

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SME financing - mortgages to drive strong growth, share in AUF to climb SME financing business of Bajaj Finance comprises of LAP, Home Loans, LAS and small business loans. In LAP market, company is one of the dominant players with a market share of 14‐15%. The market share has climbed up fast over the past few years with LAP book witnessing robust growth aided by increasing distribution and addition of new sales channel (SME cross sell ). The distribution points have more than doubled since the end of FY12. Cross‐selling business to existing customers has been growing upwards of 100%. LAP has been one of the key growth drivers for Bajaj Finance and comprises majority of SME financing business currently. The average ticket size is around Rs2cr and interest rate is near 13% for 45‐60% LTV. Though the contracted duration of loan is 10‐15 years, the actual duration has been 3‐5 years in company’s experience (as there is no prepayment penalty). To boost growth in Home Loans, the company has added a new channel of home loans to salaried individuals.

The overall mortgage business of Bajaj Finance is likely to register strong growth on the back of enhanced distribution, substantial throughput from new sales channels and steady increase in real estate prices. As per the company, though lending yield in mortgage business are significantly lower than other products, at the overall profitability level it is not materially dilutive with RoEs at 16‐17%. In the LAS segment, company provides working capital and growth capital to high net worth SMEs with established financials against marketable securities. Bajaj Finance also offers unsecured small business loans which comprise ~8% of overall AUF and ~17‐18% of SME financing book.

Driven by significant disbursement growth in the mortgage products, the share of SME financing in AUF of the company is estimated to increase to 57% in FY15 and 59% in FY16 from 52% in FY14.

Company is one of the dominant players in LAP market with a market share of 14‐15%. LAP has been one of the key growth drivers and comprises majority of SME financing Though lending yield in mortgage business are significantly lower, the overall profitability is not materially dilutive

Bajaj Finance Ltd.

8

Disbursement in Commercial segment de‐growing for the past many quarters

Share in AUF to decline to marginal level by FY15

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Commercial lending - growth unlikely to revive, share to decline further In the commercial lending space which comprises construction equipment financing, infra loans and Bajaj Auto’s supplier financing, disbursements have been de‐growing and the book gas been contracting over the past many quarters. Bajaj Finance has been cautious in construction equipment financing due to severe decline in asset utilization and in sanctioning/disbursing infra loans due to various policy issues. The growth in commercial lending segment in unlikely to revive in any meaningful way during FY15. Its share in the overall AUF is expected to decline further as the other two segments grow much faster.

AUM growth to remain sturdy Given its diversified product offerings, Bajaj Finance will continue to significantly outpace the industry growth. Though the overall disbursement growth would moderate due to de‐emphasis on commercial lending and consolidation in consumer financing, the asset growth is estimated to remain sturdy driven by robust disbursement growth in SME financing and increasing duration of the overall loan book. The average maturity profile of assets has risen to more than 2 years as compared to 20‐21 months a year back. We estimate FY13‐16 AUM CAGR at 31% and the AUF mix is expected to significantly shift in the favour of SME financing segment. Bajaj Finance recently embarked on its rural lending initiative (plan to do tractor financing, CV financing, loans against gold, etc and distribution of insurance products) by covering 67 towns in rural Maharashtra and plans to cover equal number of towns in rural Gujarat in the coming year

Commercial book has contracted over the past many quarters Its share in the overall AUF is expected to decline further

Asset growth to remain sturdy driven by robust disbursement growth in SME financing and increasing duration of the overall loan book

Bajaj Finance Ltd.

9

Both disbursement and AUM to grow at brisk pace AUF mix will shift sharply towards SME Financing

67

23

3429

32

73

34 3430 30

0

15

30

45

60

75


(%)

Disbursements AUM

46 41 42 41 38 36

4141

46 52 57 59

13 1911 7 6 5

0%

20%

40%

60%

80%

100%

FY11 FY12 FY13 FY14E FY15E FY16E

Commercial SME Consumer


Shift in AUF mix has impacted NIM Continued shift towards SME financing will moderate NIM further

46 4051 49

5745

55 51 51

2730

32 3329

4134 37 41

27 3016 19 14 14 11 12 9

8%

10%

12%

14%

16%

18%

0%

20%

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60%

80%

100%

Q3 FY12

Q4 FY12

Q1 FY13

Q2 FY13

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Q3 FY14

Consumer SME Commercial NIM (RHS)

41 42 41 38 36

4146 52 57 59

1911 7 6 5

8%

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14%

16%

18%

0%

20%

40%

60%

80%

100%


Consumer SME Commercial NIM (RHS)


NIM to decline due to shift in asset mix Bajaj Finance’s above‐average NIM profile is underpinned by large proportion of high‐yield products in its portfolio and competitive cost of funding given a strong rating profile. The company has been consistently rated AA+ by CRISIL and ICRA for its long term funding requirements. The borrowing mix is between banks and debt market is 60:40. The blended borrowing cost for the company has been pretty steady through FY14 despite the liquidity squeeze and increase in policy rate. However, NIMs have seen some correction over the few quarters due to decline in blended lending yield on account of shift in asset mix towards the lower yielding SME financing segment. With the trend expected to continue, we estimate Bajaj Finance’s NIM (calculated) to correct by 70bps in FY15 to 12.4% and by 50bps in FY16 to 11.9%. Notwithstanding the decline in margin, NII is estimated to witness 27% CAGR over FY13‐16 on the back of strong asset growth.

Bajaj Finance has an above‐average NIM profile NIMs have corrected over the few quarters due to shift in asset mix; the trend is expected to continue

Bajaj Finance Ltd.

10

Opex as % of Avg. AUF has been contained Cost/Income ratio unlikely to improve

4

6

7

9

10

Q3 FY11

Q4 FY11

Q1 FY12

Q2 FY12

Q3 FY12

Q4 FY12

Q1 FY13

Q2 FY13

Q3 FY13

Q4 FY13

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Q2 FY14

Q3 FY14

(%)

38

40

42

44

46

48

FY11 FY12 FY13 FY14E FY15E FY16E

(%)


Investment on deepening product penetration to preclude improvement in cost/income ratio The distribution income is likely to continue to grow at strong pace in the medium term. Bajaj Finance is the second largest bancassurance partner for Bajaj Allianz Life and on the verge of becoming the largest bancassurance partner for health insurance for Bajaj Allianz General. Company has been cross‐selling CRISIL ratings to its SME borrowers which has been growing well. Bajaj Finance also recently started a new fee product of providing online financial fitness report for its retail customers.

Driven by substantial investments made by the company in the past couple of years on expanding the distribution of its products, the opex growth has accelerated in recent quarters. Consequently, the cost income ratio has inched‐up in the current fiscal (45.6% in 9m FY14 v/s 44.6% in 9m FY13). Bajaj Finance expects its cost growth to moderate going ahead as incremental growth would be driven by large ticket mortgages. However, the decline in NIM would prevent any improvement in the cost income ratio during FY15/16 in our view. Bajaj Finance has rapidly expanded its distribution Geographic Presence

Business Line FY10 FY11 FY12 FY13 YTD FY14

Sales Finance 79 79 82 91 112

2W‐Hubs 54 54 54 54 54

2W‐Spokes 150 150 150 150 150

SME Businesses 15 23 31 43 46

SME Spokes ‐ ‐ ‐ 14 34

Rural Branches ‐ ‐ ‐ ‐ 14

Rural Spokes ‐ ‐ ‐ ‐ 53

Distribution

Business Line FY10 FY11 FY12 FY13 YTD FY14

Consumer Electronics 2000+ 2500+ 2800+ 3500+ 4500+

Lifestyle Finance ‐ ‐ ‐ 850+ 2400+

2W ‐ Dealer/ASCs 1275+ 1500+ 2200+ 2600+ 2600+

SME – Partner 225+ 250+ 250+ 400+ 600+

SME – Support 225+ 275+ 275+ 400+ 450+

Fee income to continue to grow at strong pace Cost growth to moderate going ahead as incremental growth would be driven by large ticket mortgages However, decline in NIM would prevent any improvement in the cost income ratio

Bajaj Finance Ltd.

11

NPL ratios have been stable despite challenges in external environment

Credit cost has been in a narrow band, notwithstanding, shift to 90‐day provisioning

0.0

0.2

0.4

0.6

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1.0

0.0

0.5

1.0

1.5

2.0

2.5

Q1 FY12

Q2 FY12

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(%)

Gross NPA (LHS) Net NPA (RHS)

(%)

0.5

0.8

1.1

1.4

1.7

2.0

Q3 FY12

Q4 FY12

Q1 FY13

Q2 FY13

Q3 FY13

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Q2 FY14

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(%)

Asset quality to stay resilient; credit cost to be stable 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 0.23% are amongst the lowest in the NBFC industry. While the economic landscape is likely to remain soft in the near term, company’s asset quality is unlikely to surprise on the negative side and the stress if any is expected to be manageable. Provisioning policies of the company has been conservative. Bajaj Finance maintains a provision of 40bps on standard advances against regulatory requirement of 25bps. By the end of Q3 FY14, the company had already adopted 90‐day provisioning for nearly 95% of its assets (except for loans within commercial segment which would be done over the next couple of quarters). Despite this transition to a more accelerated provisioning over the past few quarters, the credit cost has been contained in the range of 1.1‐1.6%. The Usha Thorat committee recommendation of moving to 90dpd by FY16, if implemented in the current form, could lead to significant spike in GNPLs but the credit cost is unlikely to increase materially with company already adhering to provisioning based on 90‐day policy.

RoA to moderate but stabilize at attractive level; capital position robust High NIMs and strong asset quality has enabled Bajaj Finance to deliver handsome RoA near 4% in spite of substantial investments in widening product distribution. Going ahead, as the asset mix moves towards low beta products, the overall profitability is expected to moderate but still settle at very impressive levels of near 3.5%. Bajaj Finance will continue to be the most profitable NBFCs. We estimate company to deliver strong earnings CAGR of 25% over FY13‐16. Bajaj Finance is also well capitalized with overall CAR and Tier‐1 ratio at 19.5% and 16.5% respectively. Strong internal capital generation should solely support brisk asset growth for the next couple of years.

Asset quality is unlikely to surprise on the negative side and the stress if any is expected to be manageable Despite shift to 90‐day provisioning, credit cost has been contained at 1.1‐1.6% Credit cost is unlikely to increase materially

As the asset mix moves towards low beta products, overall profitability is expected to moderate but still settle at impressive levels

Bajaj Finance Ltd.

12

1‐year fwd rolling P/ABV at 1.7x … trading marginally above its four‐year mean

0

400

800

1,200

1,600

2,000

Apr‐10 Jan‐11 Oct‐11 Jul‐12 Apr‐13 Jan‐14

(Rs) 1.9x

1.7x

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0.5

1.0

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Apr‐10 Apr‐11 Apr‐12 Apr‐13 Apr‐14

(x)

1‐yr roll fwd P/ABV Mean

Source: Bloomberg, India Infoline Research

Superior growth-profitability matrix to drive valuation re-rating Over the past four years, Bajaj Finance has traded in a narrow valuation band of 0.9‐1.9x 1‐year rolling forward P/ABV. This is in contrast to sharp gyrations in valuation of most of the other NBFCs that have achieved similar scale in the aforementioned period. The relatively steady valuation trajectory for Bajaj Finance is attributable to its consistent performance on growth and profitability. Even during the current slowdown, company’s asset quality has behaved resiliently. With the company expected to deliver average 3.5% RoA over FY13‐16, current valuation at 1.7x 1‐yr fwd P/ABV appears extremely attractive. While it is possible that asset mix shift towards low‐beta products could be sharper than our expectations thereby moderating RoAs more significantly, however, the risk of the business would also be lowered commensurately. So apart from the risk‐return trade‐off (which is a conscious decision of the management) and a surprise banking license win, we don’t see any exogenous factors impacting the profitability of the company over the next couple of years. Bajaj Finance hence is our Top Pick in the NBFC space and a preferred investment call in the Financials coverage. Initiate coverage with 9‐12 month price target of Rs2,003.

Valuation attractive considering elevated RoA delivery

1.4

2.2

3.0

3.8

4.6

0.6

1.0

1.4

1.8

2.2

Apr‐10 Sep‐10 Feb‐11 Jul‐11 Dec‐11 May‐12 Oct‐12 Mar‐13 Aug‐13 Jan‐14

(%)(x)

1yr Fwd P/Ad.BV (LHS) RoA (RHS)

Source: Bloomberg, India Infoline Research

Relatively steady valuation trajectory for Bajaj Finance is attributable to its consistent performance on growth and profitability With the company expected to deliver average 3.5% RoA, current valuation at 1.7x 1‐yr fwd P/ABV is attractive Initiate coverage with 9‐12 month price target of Rs2,003; Top Pick in NBFC space

Bajaj Finance Ltd.

13

Financials Income statement Y/e 31 Mar (Rs mn) FY13 FY14E FY15E FY16E

Income from Operatns 30,937 40,775 51,134 63,389

Interest expense (12,057) (15,382) (19,591) (24,298)

Net interest income 18,880 25,393 31,543 39,091

Non‐interest income 177 265 318 381

Total op income 19,057 25,658 31,861 39,472

Total op expenses (8,523) (11,421) (14,391) (17,845)

Op profit (pre‐prov) 10,534 14,237 17,470 21,627

Provisions (1,818) (2,528) (3,424) (4,420)

Profit before tax 8,716 11,709 14,046 17,207

Taxes (2,803) (3,934) (4,719) (5,782)

Net profit 5,913 7,775 9,327 11,425

Balance sheet Y/e 31 Mar (Rs mn) FY13 FY14E FY15E FY16E

Equity Capital 498 498 498 498

Reserves 33,173 39,782 47,711 57,389

Shareholder's funds 33,670 40,280 48,209 57,887

Long‐term borrow 75,031 99,791 130,227 169,947

Other long‐term liab 420 525 656 820

Long term provi 646 842 1,083 1,394

Total non‐curr liab 76,097 101,158 131,965 172,160

Short Term Borrow 20,801 27,666 36,104 47,116

Trade payables 1,690 2,112 2,640 3,300

Other current liab 45,025 59,883 78,148 101,983

Short term prov 929 1,211 1,556 2,004

Total current liab 68,445 90,872 118,448 154,402

Equity + Liab 178,212 232,310 298,622 384,449

Fixed Assets 1,762 2,115 2,537 3,172

Non‐current inv 53 79 118 178

DTA (Net) 904 1,084 1,301 1,562

Non‐current AUF 95,482 126,322 162,950 210,470

Long‐term loans/adv 863 1,035 1,242 1,490

Total non‐curr asset 99,063 130,634 168,149 216,871

Current AUF 71,955 95,195 122,798 158,609

Cash & equivalents 4,164 2,844 3,311 3,732

Short‐term loan/adv 2,348 2,818 3,382 4,058

Other current assets 682 818 982 1,178

Total Current assets 79,149 101,676 130,473 167,577

Total Assets 178,212 232,310 298,622 384,449

Key ratios Y/e 31 Mar FY13 FY14E FY15E FY16E

Growth matrix (%)

Net interest income 33.3 34.5 24.2 23.9

Total op income 33.7 34.6 24.2 23.9

Op profit (pre‐prov) 39.2 35.2 22.7 23.8

Net profit 45.5 31.5 20.0 22.5

Advances 36.3 32.3 29.0 29.2

Borrowings 33.1 33.0 30.5 30.5

Total assets 37.9 30.4 28.5 28.7

Profitability Ratios (%)

NIM 13.0 13.1 12.4 11.9

Non‐int inc/Total inc 0.9 1.0 1.0 1.0

Return on Avg Equity 21.9 21.0 21.1 21.5

Return on Avg Assets 3.8 3.8 3.5 3.3

Per share ratios (Rs)

EPS 118.8 156.2 187.4 229.5

Adj.BVPS 669.8 798.0 940.9 1,125.0

DPS 15.0 20.0 24.0 30.0

Valuation ratios (x)

P/E 14.1 10.7 8.9 7.3

P/Adj.BVPS 2.5 2.1 1.8 1.5

Other key ratios (%)

Loans/Borrowings 118.9 118.2 116.9 115.7

Cost/Income 44.7 44.5 45.2 45.2

CAR 22.0 19.7 18.1 16.6

Tier‐I capital 18.7 16.7 15.4 14.2

Gross NPLs/Loans 1.1 1.2 1.6 1.7

Credit Cost 1.3 1.3 1.4 1.4

Net NPLs/Net loans 0.2 0.3 0.5 0.5

Tax rate 32.2 33.6 33.6 33.6

Dividend yield 1.0 1.3 1.6 2.0

Recommendation parameters for fundamental reports:

Buy – Absolute return of over +10%

Market Performer – Absolute return between ‐10% to +10%

Sell – Absolute return below ‐10%

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