Bajaj Finance (BAF IN)static-news.moneycontrol.com/static-mcnews/2019/08/Bajaj... · 2019-08-09 ·...

Rating: BUY | CMP: Rs3,266 | TP: Rs3,860

Bajaj Finance (BAF IN)

In a sweet spot

Shweta Daptardar [email protected] | 91-22-66322245

Bajaj Finance

August 8, 2019 2

Contents

Page No.

Company Overview ............................................................................................... 5

Bajaj Finance – a structural play ........................................................................ 5

BAF: diversified lending model .............................................................................. 6

BAF’s Consumer lending to expand at 30% CAGR over FY19-21E ............... 7

BAF’s formidable play in consumer lending market ......................................... 10

Consumer credit growth intact ...................................................................... 10

Higher Bajaj Auto sales penetration to aid consumer lending ...................... 11

Distribution network to expand at 30% CAGR (FY19-21E) .......................... 11

Customer addition at 1 mn/quarter remains strong ....................................... 12

Top quartile return profile – edge over other NBFC ............................................. 17

Clear customer segmentation .......................................................................... 17

Fee-income to assets set to climb to 1.8% by FY21E ...................................... 19

Housing business spin-off: key RoA trigger ..................................................... 20

Why BAF would grow in mortgage finance segment? .................................. 21

Industry drivers stand in favor ................................................................... 21

How housing business spin-off is a win-win both for parent and the sub? ....... 22

Well placed in uncertain times ............................................................................. 24

BAF’s liquidity position ..................................................................................... 24

BAF’s matched ALM position ........................................................................... 24

BAF’s diversified funding structure ................................................................... 25

BAF’s diligence on capital leverage ................................................................. 26

BAF’s impeccable asset quality (<2% GNPA maintained) ............................... 27

Financial Analysis ................................................................................................ 30

BAF AUMs to grow at 31% CAGR over next two years ................................... 30

Change in mix to compress NIM’s by 60bps over FY19-21 ............................. 31

Scope for operating leverage continues to stay ............................................... 32

Healthy asset quality sustains despite robust growth ....................................... 35

Strong show on earnings ................................................................................. 35

Superior Valuations justified ................................................................................ 37

Annexures: .......................................................................................................... 40

Key strategic partnerships ................................................................................ 40

Key Technological Initiatives ............................................................................ 41

Channel checks corroborate BAF’s CD dominance: ........................................ 41

August 8, 2019 3

Rating: BUY| CMP: Rs3,266 | TP: Rs3,860

In a sweet spot

Quick Pointers:

Unmatched ecosystem in consumer lending with strong brand, distribution and

technology

Positive ALM, <2% GNPA and diversified liability mix

Spinoff of mortgage business into BHFL will accelerate growth

We initiate coverage on Bajaj Finance (BAF) with a BUY given formidable

franchise in consumer financing, strong growth momentum in rural finance

and expected uptick in mortgage business post spin off in step down

subsidiary. BAF has emerged strong in the recent NBFC rout given 1) <2%

GNPA and 65-70% PCR across cycles, avg. 40% positive ALM gap in short

maturity buckets and diversified liability mix. We believe a CAGR of 31% in

AUM and stable asset quality will enable 32% PAT CAGR over FY19-21. We

expect premium valuations to sustain given ROA and ROE of 3.7%/20.1%,

lower ALM risk and strong retail presence in consumer segment. We assign

P/ABV multiple of 6.9x FY21E to arrive at price target of Rs 3,860.

Diversified retail play: BAF has developed a formidable technology-led diversified

lending model spread across more than 50 products encompassing consumer,

SME, commercial and rural segments. We expect its core consumer business to

sustain 31% CAGR led by (1) expanding distribution at 52% CAGR with strong

presence in modern retail and online formats (2) cross selling opportunities in strong

customer base of 36mn (growing at ~1m/quarter) (3) financing avg 30% of Bajaj

Auto’s 2/3W. In addition, faster growth in mortgages (57% AUM CAGR) and rural

lending (56% CAGR) will enable 1.7x increase in book size to Rs 2003bn by FY21.

Mortgage Spin off to accelerate growth: BAF has spin off mortgage business

into a separate step down entity (Bajaj Home Finance Ltd) which will enable lean

opex business structure, access to low cost funding (NHB, ECB) and cross sell

opportunity to BAF’s credit filtered customer base (27mn). We envisage 57% AUM

CAGR which will increase the book to Rs432bn book with ROA of 1.4% by FY21.

BAF has emerged stronger in current NBFC aftermath: BAF has emerged

stronger in current business environment given 1) liquidity buffer of Rs 63bn 2) avg.

38% positive ALM gap maintenance in 1 month-1 year maturity bucket 3) diversified

liability mix (33% bank borrowings, 16% deposits, 46% market borrowings) 4)

diligence on capital leverage at/below 7x and 5) <2% GNPA across cycle by early

paring exposures in stressed sectors, stringent write-off policy and aggressive

provisioning (avg PCR of 65% since FY18). We believe strong processes will

enable 31% AUM CAGR and resilient asset quality (1.8% GNPA) by FY21.

Top quartile return profile – edge over other NBFCs: Defying market challenges,

BAF promises 3.7% RoAs and 20.1% RoE by FY21 largely led by BAF’s high fee

income base (~38% of PBT) aided by retail ecosystem across lending product

offerings, payment solutions and e-commerce platforms with customer centricity.

Bajaj Finance (BAF IN)

August 8, 2019

Company Initiation

Key Financials - Consolidated

Y/e Mar FY18 FY19 FY20E FY21E

Net Int.Inc. (Rs m) 81,305 1,18,615 1,58,330 2,00,482

Growth (%) 32.0 45.9 33.5 26.6

Op. Profit (Rs m) 48,739 76,805 1,03,241 1,36,062

PAT (Rs m) 24,964 39,950 52,278 69,438

EPS (Rs.) 44.5 69.4 89.1 116.3

Gr. (%) 32.5 55.9 28.4 30.6

Margin (%) 11.4 12.0 11.6 11.2

RoAE (%) 20.1 22.5 20.6 20.1

RoAA (%) 3.4 3.8 3.6 3.7

PE (x) 73.4 47.1 36.7 28.1

P/BV (x) 11.6 9.6 6.2 5.1

P/ABV (x) 11.8 9.9 6.4 5.3

Key Data BJFN.BO | BAF IN

52-W High / Low Rs. 3,762 / Rs. 1,912

Sensex / Nifty 36,691 / 10,856

Market Cap Rs. 1,894 bn/ $ 26,740 m

Shares Outstanding 580m

3M Avg. Daily Value Rs. 13667.83m

Shareholding Pattern (%)

Promoter’s 58.68

Foreign 21.28

Domestic Institution 8.26

Public & Others 11.78

Promoter Pledge (Rs bn) -

Stock Performance (%)

1M 6M 12M

Absolute (12.2) 21.1 18.9

Relative (5.4) 22.0 22.0

Shweta Daptardar

[email protected] | 91-22-66322245

Bajaj Finance

August 8, 2019 4

Source: Company, PL

BAF’s business model is built upon a two-fold strategy of (i) building scale and (ii)

maximising profits. While mortgage, small business loans and commercial lending

helps in building up a scale, consumer durable loans, personal loans and 2-wheeler

financing prove as profit maximizers.

BAF’s Unique business strategy

Source: Company, PL

Consumer

• Consumer Durable Loans

• Digital Product Loans (1)

• Lifestyle Product Loans

• Lifecare financing

• EMI Cards

• EMI cards - Retail Spend Financing

• 2-Wheeler & 3-Wheeler Loans

• Personal Loan Cross-Sell

• Salaried Personal Loans (1)S

• E-Commerce -Consumer Finance

• Retailer Finance

• Salaried Home Loan

• Salalried Loan Against Property

SME

• Unsecured Working

• Capital Loans (1)

• Loans to Professionals (1)

• Secured Enterprise Loans

• Used Car Financing

• Loan Against Property

• Self Employed Home Loans

• Lease Rental Discounting

Commercial

• Securities Lending

• Large Value Lease Rental Discounting

• Auto Component Manufacturer Lending

• Financial Institutions Lending

• Light Engineering Lending

• Specialty Chemicals Lending

• Corporate Finance Loans

• Developer Finance

Rural

• Consumer Durable Loans

• Digital Product Loans

• Lifestyle Product Loans

• Personal Loans Cross Sell

• Salaried Personal Loans

• Gold Loans

• Loans to Professionals

• Loan Against Property

• Home Loans

• Secured Enterprise Loans

Deposits

• Retail Term Deposits

• Corporate Term Deposits

Partnerships

& Services

• Life Insurance Distribution

• General Insurance Distribution

• Health Insurance Distribution

• Co-Branded Credit Card

• Co-Branded Wallet

• Financial Fitness Report

• Property search services

• Property Fitness Report

Sustainable growth & profitable

model

Distribution, reach and

partnerships

Tech, data and

analytics

Product suite

Customer franchise

BAJAJ FINANCE LIMITED – Business Snapshot

BAJAJ HOUSING FINANCE LIMITED

Bajaj Finance

August 8, 2019 5

Company Overview

Bajaj Finance – a structural play

BAF (Bajaj Finance) is a 31-year old diversified financial services organisation

focused on financing mass affluent customers with its 944 urban, 951 rural and over

97,000+ distribution outlets. With more than 50 product lines spread across

consumer financing, SME financing, commercial, rural and mortgage lending, BAF

has emerged as a diversified bank-like lender with an enviable franchise of 37mn

customers.

BAF’s business model is underpinned by cross selling, reviewing customer know-

how, product inventions and process innovations with optimum risk and profits akin

to a typical banking model.

BAF’s unique product positioning strategy

Low Ticket / High volume

Consumer Durables

Personal Loans

2-Wheelers

High Ticket / Low volume

Mortgages

Small biz loans

Commercial lending

Source: Company, PL

BAF has shown successful track record of 46% AUM CAGR and 52% PAT CAGR

over past decade led by strong execution, multiple product innovations, risk based

pricing and customer centricity.

We expect BAF to deliver another strong 31% AUM CAGR, 32% PAT CAGR

on the back of 29% CAGR in customer growth over FY19-21E- making it one

of the best plays in NBFCs. For housing finance subsidiary, Bajaj Housing

Finance Ltd (BHFL), we envisaged 57% AUM CAGR to Rs 432bn book, 1.4%

RoA by FY21E.

Bajaj Finance

August 8, 2019 6

BAF: diversified lending model

From being a captive 2-wheeler financier to a full-grown retail franchise, BAF

is a unique technology-led institution comparable to bank-like diversified

lending model. While the sector turned fragile post Sep’19 ILFS fallout,

NBFCs are considering new avenues to diversify their lending portfolios. In

such a scenario, we believe BAF’s lending business is geared to expand 1.7x

over FY19-21E led by its diversified product range (50+ products: bank-like)

spread across 4 lending businesses- Consumer (40%), SME (37%),

Commercial (15%) and Rural (8%) (mortgages included).

While we expect the flagship consumer business to maintain the major share in

overall mix, the incremental focus will tilt towards mortgages and rural lending as

competition swells. The commercial lending business is likely to witness selective

portfolio expansion where there is domain expertise. Rural lending that formed 3%

of overall mix in FY16 grew rapidly across rural lifestyle and consumer durable in

past 4 years. Standing at 8% of overall share today, rural business is expected to

climb to 11.2% by FY21, we reckon.

Consumer lending dominates; Rural grows rapidly

39% 41% 43% 45%39% 40% 40% 40%

53% 48% 42% 36%38% 38% 37% 36%

8% 10%12%

14%16% 13% 14% 13%

0% 1% 3% 5% 7% 8% 9% 11%

0%

20%

40%

60%

80%

100%

FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E

Consumer Lending SME Lending Commercial Lending Rural Lending

Source: Company, PL (Note: Above business mix includes mortgage portfolio)

Market leader in consumer lending business: With 40% business contribution

from consumer lending, BAF is well placed to leverage upon the rapidly expanding

consumption market in India. Recording 43% business CAGR over FY10-19 led by

core consumer durable (CD) & lifestyle product financing, BAF maintains its

leadership position across consumer electronics, white goods and digital products

and personal loans. (Refer Exhibit 76) Over past 3 years, BAF has reported 2x

increase in consumer lending business led by 5x increase in digital product finance,

4x increase in home loan portfolio and 3x increase in personal loan cross sell.

BFL continues to be dominant

consumer durables, furniture and

digital products lender (29% YoY

growth in consumer durable/ digital

products financing in FY19)

Bajaj Finance

August 8, 2019 7

Consumer lending book grew at 31% CAGR between FY17-FY19

Consumer lending business (AUM Rs mn) FY17 FY18 Q1FY19 Q2FY19 Q3FY19 FY19 Q1FY20

Consumer B2B -Auto Finance Business 62910 67490 76760 90340 97260 109080

Consumer B2B - Sales Finance Businesses 131810 92530 113920 124370 141500 122610 140860

Consumer B2C Businesses 139780 154020 168740 186840 210000 230020 248890

Overall consumer business 271590 309460 350150 387970 441840 449890 498830

Source: Company, PL

BAF’s Consumer lending to expand at 30% CAGR over FY19-21E

We expect BAF to drive 31% AUM CAGR in consumer lending business over FY19-

21E as it continues to leverage data on existing & prospective customers through

cross sell, increasing digitisation & penetration and launching new products. It

targets to reach ~100mn customers (current ~37mn) over next 5 years.

Expect 30% CAGR in consumer business

50 71 93 1

32 190

271

321

467

628

800

49%

43%

31%

42%44% 43%

18%

45%

34%

27%

0%

10%

20%

30%

40%

50%

60%

0

100

200

300

400

500

600

700

800

900

FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E

Consumer Lending AUM (bn) Growth

Source: Company, PL

SME Lending – Huge prospective customer base: With 37% of the overall AUM

share, SME lending forms second biggest portfolio for BAF that has grown at 40%

CAGR over the past decade. With diversified product offerings from LAP, LRD, HL

to affluent SMEs and self-employed professionals to developer financing under

BHFL (step-down housing subsidiary), BAF’s focus on Tier 2 markets (beyond top

40 markets) has helped to tackle higher competition and acquisition costs.

Recent times witnessed a meaningful slowdown in SME businesses due to twin

structural challenges of GST and demonetization. On similar lines, LAP book that

witnessed robust 38% CAGR since FY11, slowed to 22% between FY14-FY17 and

today stands at only Rs25bn (BHFL book) observing meaningful slowdown. LAP

proportion dipped from 28.7% in FY14 down to 12% of the subsidiary AUM as at

Jun’19 owing to increased competitive pressures, higher commission pay-outs

leading to lower risk-reward and BAF’s focus on direct lending over intermediaries.

Consumer finance business stands

equipped to carry voluminous data

with consolidation of its front office,

mid office and back office on a single

cloud platform.

Bajaj Finance

August 8, 2019 8

LAP stabilizes, increased focus on self-employed HL & biz loans

SME lending business segments (Rs mn) FY14 FY15 FY16 FY17 Q2FY18

Total Business Loans 20330 30840 54210 73740 85770

Business Loans - 24610 43090 56400 62290

Professional Loans - 6230 11120 17340 23480

Loan against property 69070 82320 83320 84230 85960

Home loans (Self Employed) 23510 30710 32330 39460 44670

SME cross sell 7180 12330 18870 22500 22480

Overall SME loans 120090 156200 188730 219930 238880

Source: Company, PL

Sensing market headwinds since FY17, BAF strategically chose to focus on self-

employed home loans and perceivably less risky professional loans. It implemented

a unique SME business strategy by adopting direct customer channels, doing credit

appraisals with sophisticated underwriting and introducing loans to a new class of

professionals (engineers, doctors which recorded sturdy 79% growth YoY in FY18).

Against this backdrop, we believe BAF’s SME business stands geared to record

27% CAGR over FY19-21E. SME lending share is likely to stabilize at ~35% of

overall mix over next 3 years despite caution on LAP business.

SME geared to clock 27% CAGR (FY21 not getting updated)

53

78

129

156

187

216

315

445

573

723

58%

47%

66%

21% 20%16%

46%41%

29%26%

0%

10%

20%

30%

40%

50%

60%

70%

0

100

200

300

400

500

600

700

800


SME AUM (bn) Growth

Source: Company, PL

Commercial lending – selective expansion: Contributing 15% to overall AUMs,

commercial has grown at 53% CAGR over FY14-19. However, competitive

intensities and challenging funding environment in the market called for selective

expansion with adequate provisioning for key account.

Collateralized by market securities or mortgages, BAF’s commercial book offers

financing against shares, MFs and insurance policies and deposits to mid-market

corporates. Focusing on high net worth and ultra-high net worth individuals, BAF’s

loan against shares (LAS) portfolio stood at ~Rs91bn as at Jun’19-end and with

LTVs of 43-44%, the underlying asset quality continues to hold good.

While quality LAS is here to stay, BAF’s domain expertise particularly in auto

component manufacturing and FI lending business will continue to be strong in the

commercial lending business. We expect commercial lending business to clock

29% AUM CAGR over FY19-21E with share in mix expected at 13% levels by FY21.

Staying ahead of time, BAF

discontinued its warehouse receipt

financing business from Apr’19 given

agrarian stress and lack of business

visibility

Bajaj Finance

August 8, 2019 9

Commercial lending to report 29% CAGR

29

26

18 3

3 52

83

133

154

213

256

214%

-8%-30%

82%

56% 60% 60%

16%38%

20%

-50%

0%

50%

100%

150%

200%

250%

0

50

100

150

200

250

300


Commercial Lending AUM (bn) Growth

Source: Company, PL

Rural lending – key business driver: Banking on the underpenetrated rural

consumption market, BAF caters to the needs of rural consumer and MSME

customers with a unique hub and spoke business model pan India. With diversified

offerings across 10 rural products namely: durable loans, digital lifestyle, personal

loans, loans to salaried and gold loans in consumer category, the rural MSME

business offers unsecured and secured loans to self-employed clients in rural

markets. Business loans form part of unsecured loans and professional loans

(Doctors, Engineers and CA’s) loans are offered as secured LAP.

Merely five-year-old, BAF’s rural business has recorded 184% AUM CAGR over

FY14-19 (8% of AUM) and 100% growth traction over past two years. Scaling up

rapidly and growing on a lower base, rural lending AUM CAGR is expected to record

56% CAGR with its share in mix poised to inch up 300bps to 11% over FY19-21E.

Rural maintains momentum; expect 56% CAGR

313

31

55

92

147

225560%

306%

129%

78% 69% 59% 53%

0%

100%

200%

300%

400%

500%

600%

0

50

100

150

200

250

FY15 FY16 FY17 FY18 FY19 FY20E FY21E

Rural Lending AUM (bn) Growth

Source: Company, PL

We have maintained mortgage lending as part of SME/commercial/rural lending

businesses until the entire mortgage assets are transferred to the newly formed

subsidiary.

Rural geographic presence is spread

across 903 towns/villages with retail

presence across 14,500 stores

Rural gold loan pacing up with 23

exclusive branches; aim 500-700 gold

branches next 5 years (ATS

Rs85000-90000) for affluent

customer

Bajaj Finance

August 8, 2019 10

BAF’s formidable play in consumer lending market

Consumer credit growth intact

Consumption to grow at 12% CAGR: Domestic consumption over the past

decade has increased 3.5x to Rs110tn in FY18. BCG estimates 12% CAGR in

consumption which will increase market size to Rs335tn by 2028.

Consumption to expand at 12% CAGR over next decade

31

110

335

0

50

100

150

200

250

300

350

400

2008 2018 2028

Total domestic consumption market (rs tn)

Source: Company, PL

...with consumer durable market to grow at 14% CAGR: As per IBeF, the

Rs812bn (FY16) consumer durable market is likely to expand to Rs1340bn by FY20

implying 14% CAGR. BAF largely operates in white goods market (like AC, washing

machines, smartphones etc.) which is estimated to be Rs350-400bn and is growing

faster than the overall white goods/electronics market.

Consumer Durable market set to grow at 14% CAGR by FY20

White goods market (units in mn) 2017 2022E CAGR %

Smartphones 150 250 11%

Television 13 18 7%

Refrigerator 12 18 8%

AC 4 8 15%

Microwave 1.5 2 6%

Source: Company, PL

Retail credit to expand at 24% CAGR: 10.3% CAGR in consumer durable credit

market, changing consumer behaviour, evolving spending patterns and improved

credit access has enabled 4x growth in retail credit market over FY08-FY18. With

continued momentum, retail credit is expected to expand at 24% CAGR by FY20E.

Retail lending poised for 1.5x expansion over next 2 years

Retail credit market size (Rs bn) FY09 FY19 FY20E FY09-FY19

CAGR %

FY19-FY20E

CAGR %

Overall Retail Loan credit market 5,625 22,207 27,457 14.5% 24%

Consumer Durable credit market 82 63 69 10.3% 10%

Credit card loan market 280 883 1,121 10.5% 27%

Source: Company, PL

Retail lending grew 4x over past

decade; poised for 1.5x expansion

over next 2 years

Bajaj Finance

August 8, 2019 11

Higher Bajaj Auto sales penetration to aid consumer lending

Being captive financier for Bajaj Auto’s 2/3-wheeler business, BAF’s auto financing

business forms 22% of consumer lending business and 8.5% of overall AUMs. Its

financing penetration into 2-wheeler and 3-wheeler sales has remained at an

average of 32% and 22-23% respectively since last 7 years thus achieving a strong

position in the segment. Defying market challenges, FY19 stood healthy with BAF

benefitting on robust Bajaj Auto sales traction that exceeded industry levels. Hence,

51% of Bajaj Auto 2-wheeler sales stood financed by BAF in Q1FY20, highest in

company history. Going ahead, the 20%+ auto finance share into consumer

business of BAF and with 33% expected penetration into Bajaj Auto 2-wheeler sales

by FY21E should continue to boost consumer lending traction.

Bajaj Auto 2-wheeler sales for tough year FY19 exceeded industry levels– BAF penetration continues stronger

Particulars FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20E

2W Volumes (mn units) 13.4 13.8 14.8 16.0 16.5 17.6 20.2 21.2 20.5

Growth in 2W volumes (YoY) % 14.1 2.9 7.1 8.1 2.8 6.9 14.9 4.9 -3.2

2W Financing Market (Rs bn) 456.8 470.0 503.4 544.1 601.3 642.8 772.7 810.2 871.3

2W financing growth (YoY) % 14.1 2.9 7.1 8.1 10.5 6.9 20.2 4.9 7.5

BAJAJ AUTO domestic 2W volumes (mn units) 2.6 2.5 2.1 1.8 1.9 2.0 2.0 2.5 2.6

BAJAJ AUTO 2W volume growth (YoY) % 6.3 (4.0) (14.8) (15.6) 7.2 5.4 1.3 28.7 1.9

BAF's 2-wheeler financing as % of Bajaj Auto 2-w sales 24.0 30.0 30.0 31.0 30.9 37.1 33.0 44.0 33.0

Source: Company, PL

Distribution network to expand at 30% CAGR (FY19-21E)

BAF’s distribution network stands spread across 1,895 branches and yearly branch

expansion contributes to ~6-7% AUM growth in the following year. Over the years,

effectiveness of the branches has increased with faster roll out and break-even.

BAF’s distribution network expansion is expected to be maintained at 30% CAGR

over next two years which will continue to accelerate AUM traction.

BAF’s expanding branch footprint

393 659 915 1332 1830 2379 3093

114%

68%

39%46%

37%30% 30%

0%

20%

40%

60%

80%

100%

120%

0

500

1000

1500

2000

2500

3000

3500


Total Branches % increase (RHS)

Source: Company, PL

Last 6 months, liquidity crisis offered

BAF an opportunity to gain sizeable

market share in 2-wheeler financing

Bajaj Finance

August 8, 2019 12

BAF’s rapidly expanding branch network competes with top private banks that stand

well entrenched in the retail lending space. Close-to-customer presence with

deeper network and analytics support to deliver in lowest possible turnaround time

has enabled BAF to stand well in-line with its key competitors in the retail business.

BAF’s network expansion vis-à-vis key retail lenders

Branch Network Increase % YoY


HDFC Bank 18% 13% 4% 2% 7% 7% 7%

ICICI Bank 8% 10% 9% 0% 0% 1% 1%

Axis Bank 8% 12% 14% 12% 9% 15% 15%

HDB Financial Services 55% 119% 24% 1% 16% 15% 16%

BAF 114% 68% 39% 46% 37% 30% 30%

Source: Company, PL

In addition, BAF’s overall distribution network has been supported by customer

touch points that increased ~6x from 16,700 in FY15 to 97,000 in Q1FY20. More

than 50% of incremental stores in this period comprised of digital products or EMI

retail stores.

POS aids consumer lending verticals, growing at 50%+ annually

Distribution (No. of Point of Sales) FY15 FY16 FY17 FY18 FY19 Q1FY20

Consumer Durable 7,000 9,400 14,000 15,500 20,400 22,000

Digital 2,650 5,200 5,900 15,900 22,500 23,100

Lifestyle 1,150 3,200 3,900 6,000 7,700 8,300

Retail EMI Retailer - - 5,600 12,100 19,100 20,700

2W Dealer/ASCs 3,000 3,000 3,200 3,900 4,600 4,900

Rural Consumer Durable 1,500 3,200 5,500 8,200 14,500 15,200

DSA 700 800 1,500 2,100 2,800 2,800

Total 16,700 24,800 39,600 64,300 91,600 97,000

Source: Company, PL

Customer addition at 1 mn/quarter remains strong

BAF commenced its consumer lending operations by acquiring customers at retail

points of sales and its current distribution network stands at 97,000 as at Q1FY20.

Over the years, it has broadened this ecosystem by acquiring customers via other

Bajaj group entities and inking agreements with partners such as Mobikwik, RBL

Bank and Future group. As at Q1FY20, BAF had a customer franchise of 37mn with

highest sequential increase of 2.46mn. BAF’s target segment comprise of mass

affluent class with rising income levels and sizeable consumer discretionary

spends. Led by zero cost EMI facility, unique to credit card offerings by banks, we

expect BAF’s customer addition run-rate to be maintained at 1mn per quarter and

resultantly the franchise is expected to grow at 29% CAGR over FY19-21E.

On higher base, HDFCB network

continues to steadily grow; BAF’s

network scaling up rapidly ->~5x

(FY15-FY19)

.

Zero cost EMIs has been the pillar of

success for the consumer durable-led

retail lending model of BAF

BAF continued to grow its co-branded

wallet business by providing EMI

cards to its customer in digital format.

Launched Rs5000-10000 loans on

co-branded wallet with 242000

disbursal cases in FY19

BAF’s Mobikwik app has 10mn active

users

BAF’s co-branded credit card with

RBL Bank surpassed 1mn cards in

force in a span of <2 years

Bajaj Finance

August 8, 2019 13

Overall affluent customer base to grow @29% CAGR next 2 years

12.916.1

20.1

26.2

34.5

44.8

57.4

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0


Customer Franchise (Nos in millions)

Source: Company, PL

BAF’s new customer addition largely emerges from existing customer

database through EMI and cross sell franchise. BAF has been able to get repeat

business due to innovation in plain vanilla loan products (of personal loans, CD,

business loans, credit cards, payment solutions) with zero interest payments,

followed by other products that facilitate bullet repayments, zero foreclosure

charges on loans (personal loans), wallet payments and pre-approved limits. (Refer

Annexure B for the detailed overview).

(i) EMI card (Existing Member Identification) franchise: BAF’s EMI card carries

pre-approved loan facility to purchase any durable and lifestyle product as against

a credit card issued by a bank that lets the card holder purchase goods or services

on credit. While credit card comes with higher interest charges with minimum

payment each month, BAF’s EMI card offers pre-approved, interest-free loans with

no/minimal down-payment up to a tenor of 24 months. With manufacturer’s

subvention in place, BAF’s interest-free ÉMI card stands preferable to bank-issued

credit card creating a win-win proposition.

While enviable customer franchise of

34.5mn (36.9: Q1FY20) exists,

current customer wallet share is still

low with huge potential to tap further

BAF aims to be one amongst the top

five credit card issuers

Bajaj Finance

August 8, 2019 14

Economical EMI card rates over bank offerings indicative of EMI card franchise growth visibility is here to stay

For BAF EMI card customer Simple interest

method Declining interest rate

Particulars Comments Cash Flows (Rs.) Cash Flows (Rs.) Cash Flows (Rs.) Cash Flows (Rs.)

Product Value 30,000

Loan Amount 30,000

Tenor 12 months

Processing Fees 3.50%

OEM Commission 8.00%

Interest rate 12.0%

01-Apr-18 Loan Disbursed -30,000 30,000 30,000 30000

01-Apr-18 Proc. Fees @ 3.5% 1,050 -1,050

30-Apr-18 OEM Comm. @ 5% 2,400

01-May-18 Zero Cost EMI 2,500 -2,500 -2800 -2665

01-Jun-18 Zero Cost EMI 2,500 -2,500 -2800 -2665

01-Jul-18 Zero Cost EMI 2,500 -2,500 -2800 -2665

01-Aug-18 Zero Cost EMI 2,500 -2,500 -2800 -2665

01-Sep-18 Zero Cost EMI 2,500 -2,500 -2800 -2665

01-Oct-18 Zero Cost EMI 2,500 -2,500 -2800 -2665

01-Nov-18 Zero Cost EMI 2,500 -2,500 -2800 -2665

01-Dec-18 Zero Cost EMI 2,500 -2,500 -2800 -2665

01-Jan-19 Zero Cost EMI 2,500 -2,500 -2800 -2665

01-Feb-19 Zero Cost EMI 2,500 -2,500 -2800 -2665

01-Mar-19 Zero Cost EMI 2,500 -2,500 -2800 -2665

01-Apr-19 Zero Cost EMI 2,500 -2,500 -2800 -2665

XIRR 25.4% 6.82% 23.6% 12.7%

Source: Company, PL

EMI card targeted towards cross-sell customer franchise with good repayment

history has grown at robust 50% YoY over past three years.

BAF’s strong positioning in credit card market

2Q’16 3Q’16 4Q’16 1Q’17 2Q’17 3Q’17 4Q’17 1Q’18 2Q’18 3Q’18 4Q’18 1Q’19 2Q’19 3Q’19 4Q’19 1Q’20

EMI cards in force (mn) 4.1 5.1 5.5 6.1 6.6 6.8 6.9 9.8 10.2 11.4 12.9 14.2 15.4 16.5 18.7 19.8

% increase YoY 74% 61% 33% 25% 61% 55% 68% 87% 45% 51% 45% 45% 39%

Mobikwik active wallet users (units in mn)

0.47 1.3 2.2 3.3 6.5 8.3 10.0

BAF RBL Credit Card (units in mn)

0.14 0.26 0.38 0.51 0.66 0.85 1.05 1.29

Source: Company, PL

Besides the EMI card, BAF’s cross sell initiatives are also improved by co-

partnering with RBL Bank to offer credit cards. However, competition in the credit

card market from market leaders like HDFC Bank, SBI, ICICI Bank, Axis Bank stay

quite prominent. And this we reckon will be rightly reflected in slight moderation in

yields going ahead for BAF in the consumer finance space.

Cross selling has not only enabled

BAF to generate revenues but also

create a sticky customer database.

Bajaj Finance

August 8, 2019 15

Growing credit card penetration; HDFCB and SBI dominates credit card market

Credit Card market size (as of Mar’19) Total Outstanding

Cards (no. units) Total Transaction

(mn) Transaction per

card (Rs.) Market Share

Cards Market Share

transaction

HDFC Bank 12,486,918 162,177 129,877 26.5% 27.9%

SBI 8,271,446 94,732 114,529 17.6% 16.3%

ICICI Bank 6,645,716 62,338 93,802 14.1% 10.7%

Axis Bank 5,959,857 62,567 104,981 12.7% 10.8%

RBL Bank 1,715,101 16,558 96,540 3.6% 2.9%

CITI Bank 2,710,776 45,253 166,939 5.8% 7.8%

American Express 1,461,191 52,671 360,468 3.1% 9.1%

Total (incl other banks) 47,088,647 580,494 123,277

Source: Company, RBI, PL

(ii) Cross sell franchise: As part of cross sell strategy, BAF focuses on cross

selling more products to the existing customers increasing mind space with them

and in turn strengthen its customer franchise. For instance, the product per

customer in SME lending business inched up from mere 2.7 in Q2FY16 to 5 in

Q1FY18 and BAF aims to step it up to 7-8.

Product per customer has scaled up rapidly especially for SME vertical

Product per customer (12 MOB) Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18

Retail 2.34 2.24 2.17 2.50 2.55 2.62 2.56 2.75 2.42

SME 2.93 2.71 3.06 3.45 3.75 4.28 4.61 5.05 4.98

Source: Company, PL

With products like EMI Card, credit card, insurance distribution, fixed deposits,

mutual funds, etc., BAF has successfully accentuated cross sell initiatives growing

3x over past 4 years. This is in-line with 3x increase in BAF’s overall customer base

from 11mn in 3QFY15 to 35mn in Q4FY19. Cross sell customers are bureau best

customers (refer exhibit 23) filtered post applying credit filters and eliminating

delinquent customers.

Formidable 37mn customer franchise; added 2.5mn customers in Q1FY20 as against historical avg 1mn/Q

Customer Franchise (Nos in millions)

Definition FY15 FY16 FY17 FY18 2QFY19 3QFY19 4QFY19 1QFY20

Cross Sell Franchise Bureau best (750>score) customer base currently with BAF

6.25 8.49 11.00 15.43 17.82 19.69 20.67 21.85

Non-Delinquent Customers Excluding 30+dpd customers 7.32 9.48 12.69 17.22 20.08 22.07 23.26 25.18

Overall Cross Sell Franchise

Customers who can be cross sold BAF products

7.77 10.32 13.67 18.88 22.17 24.29 25.89 28.00

Credit Segment Filter Mass affluent customer base 7.97 10.57 14.38 19.77 23.13 25.30 26.93 29.09

Total Franchise Total mass + mass affluent customer base of BAF

12.89 16.07 20.13 26.22 30.05 32.57 34.48 36.94

Source: Company, PL

Defying competitive challenges, BAF should continue to grow its business and

profitability by banking upon its existing customer and cross-sell franchise. We

expect 29% growth in cross sell franchise with cross sell customer base expected

to grow 1.7 times to 35mn over next two years.

BAF’s co-branded credit card crossed

a milestone of 1 mn cards in force in

<2 years

BAF is associated with 9 different

insurance companies including 3

general and 3 life

Bajaj Finance

August 8, 2019 16

Cross sell customer base to grow 1.7x by FY21E to 35mn

6.3

8.5

11.0

15.4

20.7

26.9

34.4

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0


(no

s in

mn

)

Source: Company, PL

Capitalizing upon the existing satisfied customer database, proliferation of EMI

card, cross sell franchise and diversified offerings have ensured 30%+ consistent

growth in new customer origination for BAF over the years. The growth in new-to-

BAF customers have increased at 36% CAGR over last three years in line with the

AUM traction. Number of new loans acquired have grown at a 45% CAGR.

Underpinned by BAF’s unique customer offerings, the repeat customer forms closer

to 2/3rd of overall new loans acquired by the company. For Q1FY20, 66% of new

loans were availed by existing customers of BAF.

Repeat customer disbursements up 6x since FY15

2,523 3,666 6,025

9,213

15,227

24,363

37,762

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

FY15 FY16 FY17 FY18 FY19 FY20 FY21

Billio

n

New loans from repeat customers

Source: Company, PL

66% of new loans were availed by

existing customers of BAF in Q1FY20

v/s 60% in FY18

Light on capex and credit costs

friendly, repeat customer base (53%

CAGR) over years continues to boost

incremental RoA.

Bajaj Finance

August 8, 2019 17

Top quartile return profile – edge over other NBFC

Defying market challenges, BAF promises 3.7% RoAs and 20%+ RoEs over next

two years. We believe three key catalysts will enable BAF to maintain such a high

quartile return profile:

(a) Clear customer segmentation (focusing on innovative offerings) for repeat

business

(b) BAF’s high fee income base (~38% of PBT) aided by retail ecosystem built-

up across lending product offerings, payments solutions and e-commerce

platforms.

(c) Spinning off mortgage business into a step-down subsidiary should ensure

maintenance of high order RoAs for BAF.

Clear customer segmentation

Focus on mass affluent customer base, rural affluent customer segment, salaried

mortgage customers and digital driven new age customer focus have ensured clear

customer segmentation which in turn marks consistent revenue traction.

Targeting mass affluent customer: With BAF’s overall customer base standing

at 37mn and the mass affluent market size being 81mn, there remains 44mn

households to be tapped incrementally in the high end side.

Mass affluent household drives consumption

(mass affluent household share to consumption %)

Source: Company, PL

81mn affluent household forms target market for BAF

Household Type based on annual income

No. of household

in 2018 (mn)

No. of households

(10-year CAGR %)

Avg. spend per household

growth rate (%)

Struggler (<Rs 15 lkh income) 67 -2 8.5

Next billion (Rs 1.5-5 lakh income) 129 2 8.5

Aspirer/ Mass affluent (Rs 5-10 lakh income) 57 6 8.5

Affluent (Rs 10-20 lakh income) 24 9 8.6

Elite & above (Rs 20 lakh & > income) 9 13 8.6

Source: Company, PL

Thrust on rural customers: Rural and semi-urban markets are growing at 25%

CAGR and are expected to contribute 50% towards the overall consumer durable

market in the future. With geographic presence across 951 towns and retail

presence across 15,200 stores, BAF stands fully geared to capture the latent

demand arising from the rural consumer market.

17

44

33

610

34

43

13

0

10

20

30

40

50

Struggler Next billion Mass & massaffluent

Elite & above

FY08 FY18

Most businesses in BAF are focused

on acquiring mass affluent customers

representing bigger wallet, larger

cross-sell opportunities and lower risk

Bajaj Finance

August 8, 2019 18

Rural-urban divide aids reduced concentration risks

38%

59% 60% 59%45% 49%

62%

41% 40% 41%55% 51%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY14 FY15 FY16 FY17 FY18 FY19

%Rural branches % Urban branches

Source: Company, PL

Focus on salaried mortgage customers: With an objective to combat risks and

provide stability to its balance sheet, BAF formed step-down subsidiary named-

Bajaj Housing Finance Ltd (BHFL) in Q2FY18, to run a full-fledged mortgage

business. Focusing on salaried home loan customer that accounts for 88% of the

mortgage customer base, Q1FY20 witnessed 93% of mortgage customer

acquisition emerging from salaried home loans segment.

Unique mortgage customer profile of new formed BHFL

Product bouquet Focus area Customer profile Leveraging relationships

Home Loan (HL) Developing the B2B business in home loans

Mass affluent and above customer (salaried and self employed)/ rural individual customers

Leveraging existing developer finance relationships, tie-ups with new project launches

Loan against property (LAP) Sell LAP product to existing customers

Mass affluent and above self employed customers/ rural MSME customers

Usage of direct to customer channel facilitated growth, controlled asset quality

Lease Rental discounting (LRD)

Transactions backed by rentals through escrow mechanism

Mass affluent and above customer (salaried and self employed)

Transactions secured by escrow mechanism encouraging LRD business trajectory

Developer finance Offers fresh construction finance and inventory finance

Category A and A+ developers in India (mid-size developers)

Unique developer relation (110 developers) ensure risk based pricing & quality

Source: Company, PL

Focus on new age customer: Data accessibility and data mining should continue

to drive innovation for BAF. With a dedicated analytics team indulged into number

crunching, BAF engages in customer service at various levels through call centres,

IVR, bi-directional SMS, email, online portal, mobile applications and branches.

BAF engages in customer lifecycle mapping aided by analytics models viz,

application scorecards, behavioural scorecards, collection scorecards and fraud

scorecards to boost fee revenue traction. For instance, professional loans in FY18

recorded sturdy 79% YoY growth led by ‘Direct to Customer’ (D2C) and analytics

based model.

BAF has diversified its risk and

portfolio geographically over 1,895

urban and rural locations in India

aiding minimal concentration risks

Bajaj Finance

August 8, 2019 19

Fee-income to assets set to climb to 1.8% by FY21E

With various lending products, payment solutions and e-commerce platforms, BAF

has created an ecosystem that forms a base for substantial fee income. Products

such as BFS Direct, Life Care financing, Zero Cost EMI and Business loans

to CAs, engineers, doctors have enabled customer retention and fee-income

growth.

BAF’s ecosystem revolves around customer lifestyle mapping aiding fee income trajectory

Source: Company, PL

A superior bank-like structure yielding 3%+ RoAs and 20% RoEs can be largely

attributed to BAF’s fee income base (that stood at 38% of PBT in Q1FY20) aided

by customer centricity and strategic partnerships.

Fee-income to PBT at ~39% levels – key revenue

driver for BAF

32.9%

26.4%

28.4%29.9%

33.3%

36.0%

38.4% 38.6%

20.0%

22.0%

24.0%

26.0%

28.0%

30.0%

32.0%

34.0%

36.0%

38.0%

40.0%

FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19

Source: Company, PL

Fee income (as % of assets) to climb to 1.8% over

next 2 years

1.20%

1.00%

1.40%

1.50%

1.30%

1.40%

1.50%

1.60%

1.80%1.80%

1.00%

1.10%

1.20%

1.30%

1.40%

1.50%

1.60%

1.70%

1.80%

1.90%

FY

12

FY

13

FY

14

FY

15

FY

16

FY

17

FY

18

FY

19E

FY

20E

FY

21E

Source: Company, PL

We expect the fee income to assets ratio to climb to 1.8% by FY21E from current

1.6% in turn forming a key revenue driver to RoA expansion to 3.6-3.7% over FY20-

21E.

Fee Income Revenue Streams

Credit Card (Co-branded with RBL)

All Banks

EMI Card (Digital)

BAF Dominance

Payment Wallets

Paytm, Phone Pe, Google pay, UPI

Insurance Cross Sell (Life / General)

All insurance Cos, and distributors like banks

and allied

Consultancy Services (Property Fitness

report/Financial Fitness report/Asset care

products)

BAF Dominance

~15% of BAF’s other income stream

emerge from fee-income from these

value add services and products

Co

mp

eti

tio

n

Co

mp

eti

tio

n

Co

mp

eti

tio

n

Bajaj Finance

August 8, 2019 20

Housing business spin-off: key RoA trigger

A lean opex model, a step-down subsidiary dedicated to housing finance, access

to low cost funding (NHB, ECBs) & low credit costs should prove lucrative for BAF.

While BAF businesses continue to focus on product portfolio & geographies to curb

risk and strengthen profitability, it is also in the process of moving its entire

mortgage business to a dedicated housing finance subsidiary (100% owned) – Bajaj

Housing Finance Ltd. (BHFL) fully operational from February 2018.

With new incremental bookings emerging for BHFL, the existing mortgage balance

sheet will continue to stay in BAF and should run down over a period of time. BHFL

aims to build an asset base of Rs700bn in 5 years from current Rs374bn (consol).

Mortgage business dynamics

Product bouquet Focus area Customer profile ATS (Rs) Avg Loan

tenure (years) LTV % Presence

Home Loan (HL) Developing the B2B

business in home loans

Mass affluent and above customer (salaried and self employed)/ rural individual customers

37lkhs 18 70% 44

Loan against property (LAP)

Sell LAP product to existing customers

Mass affluent and above self employed

customers/ rural MSME customers

27lkhs 11 50% 30

Lease Rental discounting (LRD)

Transactions backed by rentals through escrow

mechanism

Mass affluent and above customer (salaried and

self employed 20crs - - 8

Developer finance Offers fresh construction

finance and inventory finance

Category A and A+ developers in India (mid-

size developers) 15-35cr - - 8

Source: Company, PL

The mortgage AUM mix stands tilted towards home loans (65%) with LAP, LRD

and developers forming 27% of the overall mix. While BAF kick-started mortgage

business with thrust on retail mortgages, as the book grew, the company started

offering construction and inventory finance to category A/A+ developers with ATS

ranged between Rs150-350mn across top 8 cities. With greater thrust on salaried

home loan segment, we expect home loans to contribute as high as 75% to overall

mortgage mix by FY21 with remainder dominated by LRD, cautious LAP and

developer & allied financing.

BAF’s mortgage profile lays emphasis on home loan business since inception

Source: Company, PL

Home Loans

82.5%

LAP17.9%

3QFY18

Home Loans

68.0%

LAP16.0%

Dev eloper Financing

+ LRD

17.0%

FY19

Home Loans

75.0%

LAP14.0%

Dev eloper Financing +

LRD

11.0%

FY21E

Bajaj Finance

August 8, 2019 21

Why BAF would grow in mortgage finance segment?

Industry drivers stand in favor

The 17tn mortgage market grew @ 18% CAGR

over past few years

Source: Company, PL

HFCs continue to drive mortgage credit

Source: Company, PL

Leveraging on BAF customer franchise: BHFL will aim to leverage the existing

25mn non-delinquent customer base of BAF. Cross selling to this credit filtered

quality franchise with differentiated pricing and customer service, BHFL stands

poised to double the mortgage book over 4 years’ time-frame ahead.

Bringing in efficiencies: A housing finance structure enables to operate on a lean

opex model. While housing finance being a plain vanilla lending model, the need

for heavy infrastructure in terms of bigger offices and greater employee count

stands low. However, owing to partial housing business still being generated on

parent BAF’s books, the opex to NII ratio stood elevated at 63% (FY19) for BHFL.

Said that, as the book expands with the complete shift of housing portfolio to BHFL

opex to NII should normalize <50%. Ability to reach out to customers is a key with

minimal need for innovation or disruption, we reckon.

Providing risk and stability: Mortgage business will be aimed to provide risk and

ALM stability (from a long term perspective) in addition to RoA enhancement.

Matched mortgage ALM

114 1

43 164 1

90

254

166

212

216

216

254

0

50

100

150

200

250

300

>1 to 3 yr >3 to 5 yr >5 y to > 7 y >7 y to 10 y > 10 y

(Rs

bn

)

Cumulative Inflow Cumulative Outflow

Source: Company, PL

1.20%

1.00%

1.40%

1.50%

1.30%

1.40%

1.50%

1.60%

1.80%1.80%

1.00%

1.10%

1.20%

1.30%

1.40%

1.50%

1.60%

1.70%

1.80%

1.90%

FY

12

FY

13

FY

14

FY

15

FY

16

FY

17

FY

18

FY

19E

FY

20E

FY

21E

24%

19%

24%21%

23%

19%16%

22%

19%

9%

19%16%

18%

14%16%

12%

0%

5%

10%

15%

20%

25%

30%


HFCs Banks Mortgage Credit

With an estimated shortage of ~400

lakh houses in India, next leg of

housing finance credit should be

driven by HFCs operating largely in

low/middle-income group

Mortgage – more of an ALM business

than asset business for BAF

Bajaj Finance

August 8, 2019 22

With no intent to expand RoEs at the cost of quality, BHFL continues to lay greater

thrust on salaried home loan portfolio with almost 93% incremental loan acquisitions

emerging from this perceivable risk-free business.

Reducing funding costs: The cost of borrowings stands substantially low in a HFC

set-up and BHFL can raise funds 20-25bps cheaper than its parent- BAF which

should step-up ROEs and ROAs as a subsidiary.

How housing business spin-off is a win-win both for parent and the sub?

As on Jun’19-end, BHFL’s AUM stood at Rs 217.5bn, it’s ROA improved to 0.4%

(0.0% in Q1FY19) largely led by steady credit costs ranged at 0.0-0.1%. With

combined mortgage book of Rs 374bn (Rs 171bn on BAF’s balance sheet), BHFL

is poised to grow to Rs 681bn full-fledged mortgage asset franchise by FY23E in

our assessment.

BHFL set to become ~Rs680bn asset franchise by FY23E

16 3673

107140

176

307

432

550

681

0

100

200

300

400

500

600

700

800

3Q

FY

18

4Q

FY

18

Q1F

Y19

Q2F

Y19

Q3F

Y19

FY

19

FY

20E

FY

21E

FY

22E

FY

23E

(Rs

bn

)

Source: Company, PL

With mortgage penetration still on lower side, BAF, with greater focus on salaried

retail home credit, has immense potential to tap the insatiated mortgage market

under the newly formed full-fledged HFC business.

HDFC dominates the HFC market, BHFL geared to climb 3 notches higher in next 3 years

4066

1664

1226 1200

623349 339

184 174 116 114 59

0

500

1000

1500

2000

2500

3000

3500

4000

4500

HDFC LICHF IndiabullsHFC

DHFL PNBHF IIFL BAFMortgage+ BHFL

CanFinHomes

Gruhfinance

Edel ABHousing

Finance ltd

AavasFinancier

AU

M (R

s b

n)

Source: Company, PL (Note: Above AUM figures stand for FY19)

Bajaj Finance

August 8, 2019 23

We believe BHFL business stands geared to clock 30bps increase in RoA by FY21

to 1.4% from current 1.1% (FY19) largely led by healthy CAR at 23.17% and healthy

leverage at 6x, opex to NII settling at 50% levels from 60%+ till Q2FY19 and 40%

AUM CAGR over next four years.

Moreover, parent BAF should witness operating leverage benefits flowing in with

hiving-off of a cost intensive, capex heavy housing business into a full-fledged

housing finance entity in turn boosting RoA metrics of the parent company. With

operating leverage playing out with a step-down subsidiary for housing finance in

place, we see parent’s (BAF’s) ROAs to stay at 3.6%-3.7% levels over FY19-21E.

BHFL Business outlook

Particulars FY19 FY20E FY21E Comments

AUM (Rs mn) 1,75,620 3,06,966 4,31,745

YoY Growth 389.3% 74.8% 40.6% Mortgage business growth to stabilize to 40% by FY21

Incremental Book Build up assumption (YoY) 1,39,730 1,31,346 1,24,779

AUM Mix (%)

Home Loans 68.0% 72.0% 75.0% 93% salaried home loan focus to boost home loan share

LAP 16.0% 15.0% 14.0% Cautious stance would imply tad moderation in mix

Developer Financing 17.0% 13.0% 11.0% Granular book with sanctions’ ticket size Rs45-50crs

Customer Composition (%)

Salaried 85.0% 86.0% 87.0%

Self-employed 15.0% 14.0% 13.0% Self-employed exposure reduction prominent

Source: Company, PL

Bajaj Finance

August 8, 2019 24

Well placed in uncertain times

Defying market challenges, BAF continues to grow its market share. This can be

largely attributed to:

(a) Comfortably placed on liquidity (Rs 64bn liquidity buffer)

(b) 60% positive ALM gap maintenance across short-term maturity buckets,

(c) Diversified liability mix (bank borrowings at 35%, sizeable deposits at 16%,

market borrowings 39%),

(d) Diligence on maintaining capital leverage at/below 7x

(e) GNPA maintained below 2% levels over past 5 years backed by cautious lending

corroborated by early paring exposures in beleaguered sectors (infra, LAP, digital)

BAF’s liquidity position

As on FY19, the liquidity position of BAF remains intact corroborated by internal

accruals in form of loan repayments of Rs98bn (FY19), liquidity buffer to the tune

of Rs63bn in the form of cash and liquid investments as at Jun’19-end.

Despite tough liquidity situation since the ILFS crisis broke out in Sep’18, BAF

succeeded in adding 2.5mn customers incrementally in the tough quarter of

Q1FY20 maintaining >1mn customer acquisition rate during entire FY19 which

forms a strong base for business visibility. While the sequential book addition has

turned cautious, yet the AUMs climbed 1.2 times from Rs 1099bn in Q3FY19 to Rs

1289bn in Q1FY20.

BAF’s matched ALM position

ILFS crisis has forced NBFC’s for reality check on their ALM’s. BAF, in our opinion,

will continue to stand firm on the ALM structure with matched tenures both on asset

and liability sides given the company’s natural hedge of ALM. BAF’s diversified

product portfolio across tenors ranging from 1 month to 240 months with borrowings

obligations intact from smaller buckets till 5 years.

BAF's diversified product profile - tenor-wise

Tenor Loan product

1 month Purchase Order and Retailer finance

3 months EMI spends financing

8 months B2B

12 months loan against securities

24/36 months 2wheeler, Personal loans, unsecured SME

60 months Commercial Lending

180-240 months Mortgages

Source: Company, PL

With Rs 63bn liquidity on balance

sheet, BAF stands geared to sail

through tough times by maintaining

market positioning

Bajaj Finance

August 8, 2019 25

Positive ALM across years

Particulars (Rs mn) FY15 FY16 FY17 FY18

FY19

Cum Assets 315,317 437,898 617,574 816,717 1159,410

Cum Liabilities 267,050 370,423 492,736 615,670 1159,390

Gap 48,267 67,475 124,838 201,047 20

Source: Company, PL

BAF maintains average 39% positive ALM gap for 1-month bucket and 29%

cumulative positive gap in 12month bucket as at the end of Jun’19 which is quite

above -15% regulatory threshold. This not only protects BAF from volatile liquidity

conditions but has also strengthened its market position in current environment.

BAF well positioned on ALM than peer set

Gap as % of Liability (FY19) 1 Month 3-6 Months 6 M -1 Year 1-3 Years

CIFC 27.27% 25.31% 13.53% 6.59%

LTFH 198% 33.0% 63.0% *

BAF 51% 79% 57% 35%

Source: Company, PL, *Note: LTFH data available only till 1 year

BAF’s diversified funding structure

BAF’s liability structure has undergone a meaningful change over the past few

years with expansion in AUMs. While traditionally BAF’s borrowings skewed

towards bank term loans, however with expansion in low ticket retail consumer

durable lending, market borrowings too inched higher. While these CD loans largely

have a short tenure, BAF continues to maintain well matched ALM as:

BAF’s LAS business functions as a natural hedge with sizeable prepayments

from HNIs.

BAF maintains 4-6% of its total balance sheet as cash and cash equivalents

which is expected to increase to ~8% as the balance sheet size increases.

BAF has been the biggest beneficiary of the recent ECB guidelines (January

16th, 2019) as now both BAF and BHFL stand eligible to raise USD 750mn

each.

Bank term loans and NCDs continued to contribute highest at 34% and 35%

respectively to the overall funding mix and deposits component has grown from

mere 1% in FY14 to 16% today.

BAF’s current fixed deposit book at Rs151bn that grew 55% YoY in Q1FY20

forming 13% of consolidated balance sheet and is geared to expand to 17% by

FY20 and ~30% over next three years.

To increase investments in new

channels to grow deposits, BAF

started offering fixed deposit

schemes to rural customers aiding

expansion in retail liabilities

Bajaj Finance

August 8, 2019 26

Diversified borrowing mix- bank/mkt borrowings dominate

1% 4% 6% 8% 12% 15% 14% 15% 16%

58% 54% 48%35% 31%

34% 32% 34% 34%

25% 33% 38%40% 43% 35% 36% 38% 35%

3%4% 3%

7% 6% 5% 5% 5% 4%13% 5% 5% 10% 8% 11% 12% 8% 11%

0%

20%

40%

60%

80%

100%

FY

14

FY

15

FY

16

FY

17

FY

18

Sept'18

Dec'1

8

Mar'19

June'1

9

Deposits Bank loans (incl CC/OD/WCDL)

NCD Subordinate Debt

Short term borrowing

Source: Company, PL

BAF’s deposit augmentation v/s top player in the NBFC space

Deposits as a % of Liabilities FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 1QFY20

BAF 0% 0% 1% 4% 6% 8% 12% 15% 16%

HDFC Ltd 26% 33% 31% 32% 31% 31% 29% 29% 30%

Source: Company, PL

BAF’s diligence on capital leverage

While historical RoEs have been maintained north of 20%, BAF yet continues to

remain conscious by maintaining capital leverage threshold limit at/below 7.0x. The

exhibit below elucidates BAF’s capital raise program each time the leverage limit

hit closer to 7x.

Rs 79bn capital augmentation over past 10 years

Period Capital amt. (Rs bn) Instrument

Sep'17 45 QIP

Nov’16 4.08 Conversion of Warrants of Bajaj Finserv

Jun’15 14 QIP

Mar’13 7.44 Rights Issue

Dec’12 0.85 Conversion of Warrants of Bajaj Finserv

Mar’12 3.05 Conversion of Warrants of Bajaj Finserv

Jul’07 0.51 Conversion of Warrants of Bajaj Auto

Mar’07 0.72 Conversion of Warrants of Bajaj Auto

Feb’07 4.09 Rights Issue

Overall Capital raise 79.74

Source: Company, PL

With capital leverage closer to 7x already (6.6x), we incorporate Rs 40mn capital

raise into our FY20 estimates.

Bajaj Finance

August 8, 2019 27

Capital sufficiency and restricted leverage bodes well

17.5

22

19.218

19.5 20.3

24.7

20.7

6.45.3 6.2 6.8 6.3 6.6

5.4 6.3

0

5

10

15

20

25

30


Tier 1 (%) Tier 2 (%) CRAR (%) Leverage Ratio (x)

Source: Company, PL

BAF’s impeccable asset quality (<2% GNPA maintained)

Post the poor asset quality show during FY07-10 owing to high stress in the two-

wheeler financing and computer financing business, BAF realigned its portfolio

strategy with 1) great thrust on safer products like LAP and mortgages 2) extensive

usage of CIBIL scores and 3) focus on repeat customer base and on affluent &

mass affluent customers with steady repayment pattern. Robust data analytics that

throw early warning indicators, strong risk management team (segregation of risk

and credit functions), rigorous portfolio review mechanism (pared down

infrastructure, construction equipment and grew cautious on digital product finance

business) has enabled BAF to achieve <2% GNPA since FY12.

BAF exhibits impeccable asset quality trends: <2% GNPA maintained despite AUM growing @ 30%+ CAGR

FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E

AUM Growth 58.8% 87.8% 73.1% 33.6% 37.4% 34.7% 36.5% 36.1% 36.9% 40.6% 34.7% 28.4%

GNPA % 4.89% 3.81% 1.16% 1.09% 1.18% 1.51% 1.23% 1.68% 1.41% 1.54% 1.69% 1.82%

Source: Company, PL

Over the past five years, BAF has exhibited significant improvement with GNPAs

hovering below 2% levels despite book growing 6 times during the same period.

The credit cost (i.e. provisions as percentage of loans) also declined from 8.1% of

advances in FY10 to 1.2% by FY13 and 1.6% as on FY16. In FY19, loan loss

provisions to AUM stood at 1.30%.

Under INDAS, the ECL (Expected credit loss) categorization also spells out

controlled asset quality for BAF with Stage 3 assets standing below 2% levels and

Stage1&2 ranged between 0.85-0.90% over past one year. ECL as proportion of

total assets have stood ranged between 1.75%-1.85% over past one year.

BAF’s strategy of ‘acquire and cross-sell’ to manage cost and portfolio risk is largely

underscored by the fact that existing customer poses significantly lower credit risk

than a new customer. Credit cost of these customers are 0.15-0.33x that of a new

customer base.

In FY2017, BFL developed a real-

time machine learning based fraud

analytics model replacing traditional

score based model

Fintech models like aplication score

card, bureau score card, fraud check

that spell qualitative aspects of

customer’s credit enable stable asset

quality

Mere 6bps spike in NPA on

sequential basis in Q1FY20 despite

challenging environment post ILFS

crisis

Bajaj Finance

August 8, 2019 28

Resilient asset quality metrics – Q1FY20 saw slight deterioration as commercial lending/LAP saw slip-ups

ECL Summary Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20

Stage 3 assets 1.63% 1.41% 1.39% 1.49% 1.55% 1.54% 1.60%

ECL Provision % Stage 1 & 2 assets 0.94% 0.89% 0.90% 0.89% 0.88% 0.85% 0.86%

Coverage Ratio % Stage 3 assets 65% 70% 69% 65% 60% 60% 61%

ECL / Total assets 1.99% 1.86% 1.84% 1.89% 1.81% 1.75% 1.82%

Source: Company, PL

Segmental asset quality remains robust: Across business segments, BAF has

demonstrated superior asset quality with declining GNPA trends over past two

years. The SME businesses had shown increased delinquencies immediately after

the GST roll out which has stabilized in recent periods. Rural business has

observed structurally lower NPAs.

No sharp deterioration in asset quality despite challenging times

Business wise GNPA 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20

Consumer Business 2.26% 2.10% 2.12% 2.09% 2.31% 2.38% 2.16% 2.26% 2.44%

SME Business 1.91% 1.89% 1.82% 1.31% 1.84% 1.88% 1.75% 1.49% 1.69%

Commercial Business 0.05% 0.04% 0.03% 0.00% 0.00% 0.00% 0.00% 0.64% 0.24%

Rural Business 0.75% 0.85% 1.09% 1.17% 1.25% 1.26% 1.20% 1.45% 1.54%

Source: Company, PL

The Company’s net NPA at 0.6% is one of the lowest in the NBFC industry. This

was despite the fact that the portfolio quality of BAF’s mortgage businesses was

under pressure owing to the stressed real estate market and elevated competition

in the segment.

BHFL’s ECL Stage 3 under control

BHFL/Mortgage business ECL Summary Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20

Stage 3 assets 0.00% 0.02% 0.03% 0.05% 0.06%

ECL Provision % Stage 1 & 2 assets 0.14% 0.13% 0.14% 0.15% 0.16%

Coverage Ratio % Stage 3 assets 33% 24% 25% 36% 35%

ECL / Total assets 0.14% 0.14% 0.15% 0.17% 0.18%

Source: Company, PL

ILFS and rural B2C biz led to spike in absolute GNPAs in Q3

Credit quality - GNPA Q1FY19 Q4FY19 Q1FY20

Consumer B2B -Auto Finance Business 5.70% 5.12% 5.19%

Consumer B2B - Sales Finance Businesses 1.03% 1.05% 1.16%

Consumer B2C Businesses 1.67% 1.40% 1.63%

Rural B2B Business 0.82% 0.93% 0.97%

Rural B2C Business 1.31% 1.53% 1.63%

SME Business 1.87% 1.49% 1.64%

Commercial Lending Business - 0.64% 0.61%

Mortgages 0.55% 1.23% 1.19%

Overall GNPA 1.39% 1.54% 1.60%

Source: Company, PL

Co. tightened underwriting standards

in digital product financing in urban

and rural, SME and auto finance

businesses on account of patchy

macro environment

Q1FY 20 observed absolute

slippages increase by 84% YoY

Delinquency stood at 2.3%, credit

costs climbed to 1.8%.

Products such as 2-W/3-W financing,

digital product financing, personal

loans cross-sell and rural lending B2B

saw sequential uptick in PAR 30 dpd

Bajaj Finance

August 8, 2019 29

Q1FY20 witnessed BAF shifting two businesses; namely, 2-wheeler financing and

digital product financing to yellow from green zone on prudency grounds in

anticipation of worsening macros. Hence, company also plans to prune down the

bottom 12-15% customers in these portfolios exercising conservatism.

Barring LAP, all business verticals have been performing well across buckets

Product wise % of No-Due/Current Customers % of Due Customers - 1 DPD onwards % of Due Customers - 30 DPD onwards

FY16 FY17 FY18 FY19 Q1’20 FY16 FY17 FY18 FY19 Q1’20 FY16 FY17 FY18 FY19 Q1’20

Consumer Durable 98.1% 97.8% 98.9% 98.7% 98.5% 1.9% 2.2% 1.1% 1.3% 1.5% 1.7% 1.4% 0.7% 0.8% 0.9%

2-Wheeler & 3-Wheeler 89.9% 85.7% 88.8% 90.2% 88.7% 10.1% 14.3% 11.2% 9.9% 11.3% 4.8% 6.8% 5.6% 4.7% 5.3%

Lifestyle Finance 98.3% 97.3% 98.7% 98.5% 98.2% 1.7% 2.7% 1.3% 1.5% 1.9% 0.9% 1.7% 0.8% 0.8% 1.0%

Digitial Finance Portfolio 96.9% 97.3% 98.5% 98.3% 97.7% 3.1% 2.7% 1.5% 1.7% 2.3% 2.1% 1.7% 0.9% 1.0% 1.5%

Personal Loan Cross Sell 97.3% 97.3% 97.6% 97.8% 97.5% 2.7% 2.7% 2.4% 2.2% 2.5% 1.4% 1.4% 1.3% 1.2% 1.4%

Salaried Personal Loan 99.5% 99.5% 99.7% 99.7% 99.7% 0.5% 0.5% 0.3% 0.3% 0.3% 0.3% 0.3% 0.2% 0.2% 0.3%

Small Business Loan 98.8% 98.4% 98.7% 98.8% 98.6% 1.2% 1.6% 1.3% 1.3% 1.4% 0.7% 0.9% 1.0% 0.9% 1.0%

Loan Against Property 99.2% 99.2% 99.2% 97.7% 97.7% 0.8% 0.8% 0.8% 2.4% 2.3% 0.7% 0.7% 0.8% 2.3% 2.2%

Home Loans 99.0% 99.0% 99.5% 99.5% 99.4% 1.0% 1.0% 0.5% 0.5% 0.6% 0.7% 0.9% 0.2% 0.4% 0.4%

Rural Lending 98.9% 99.2% 99.1% 99.1% 98.8% 1.1% 0.8% 0.9% 0.9% 1.2% 0.6% 0.7% 0.6% 0.7% 0.8%

Source: Company, PL

1/5th of the BAF employee base has

been deployed for collection activity

across country

Bajaj Finance

August 8, 2019 30

Financial Analysis

BAF AUMs to grow at 31% CAGR over next two years

The company has grown its asset under management (AUM) at a robust pace

clocking 46% CAGR over FY10-18 largely led by a strong 47% CAGR in consumer

lending followed by 36% CAGR in SME lending business segments. Commercial

and rural lending businesses that kick-started full-fledged in FY14, recorded 27%

and 82% business CAGR respectively over past four years. While maintaining a

diversified AUM mix, consumer business forms 40%, remainder 60% share stands

contributed by non-consumer businesses (SME lending at 37%, commercial

lending at 15% and rural 8%). Although a part of rural lending, consumer durables/

lifestyle loans form a meaningful share in rural lending.

We expect BAF’s AUM to grow at 31% CAGR over FY19-FY21 led by 1) continuous

product offerings & technology led innovation; 2) proliferation of cross-selling

franchise (currently ~60% of total customer franchise) and instant EMI card finance

3) effective use of advance analytical capabilities 4) calculated geographical

expansion and 5) robust risk management practices.

Expect 31% AUM CAGR over FY19-FY21E

131

175

241

324

442

602

824

1159

1561

2004

73%

34%37%

35% 36% 36% 37%41%

35%28%

0%

10%

20%

30%

40%

50%

60%

70%

80%

0

500

1000

1500

2000

2500


AUM (bn) Growth

Source: Company, PL

Despite acute challenges of demonetisation, RERA and GST over FY17-FY19, the

total customer base witnessed 1.6x increase led by healthy 1.7x increase in cross

sell customer base during the same period.

Customer & AUM traction expected to grow ~30% next 2 years

Key Parameters FY16 FY17 FY18 FY19 FY20E FY21E

Cross Sell Franchise Growth 36% 30% 40% 34% 30% 28%

Total Customer Franchise Growth 25% 25% 30% 32% 30% 28%

AUM Growth 36% 36% 37% 41% 35% 28%

PAT Growth 42% 44% 36% 60% 31% 33%

Source: Company, PL

Strong execution continues for BAF

with Q1FY20 witnessing robustness

across product segments barring

slight moderation in consumer B2B

and commercial lending

Bajaj Finance

August 8, 2019 31

BAF maintains highest AUM/loan traction

Loan/AUM Growth YoY FY15 FY16 FY17 FY18 FY19 FY20E FY21E

SHTF 11% 23% 8% 22% 13% 14% 15%

LTFH 18% 23% 8% 28% 19% 16% 17%

MMFS 8% -1% 16% 15% 26% 15% 16%

CIFC 10% 17% 15% 26% 27% 18% 18%

HDFC 16% 14% 14% 21% 12% 16% 17%

LICHF 19% 16% 16% 15% 16% 15% 16%

HDB Financial services 42% 29% 40% 30% 32% 30% 30%

BAF 35% 36% 36% 37% 41% 33% 29%

Source: Company, PL

Change in mix to compress NIM’s by 60bps over FY19-21

BAF’s NII traction has always followed AUM momentum translating into healthy

NIMs at 11% over past five years.

Largely NII growth has tracked AUM growth


NII Growth 39% 33% 30% 27% 39% 41% 32% 46% 33% 27%

AUM Growth 73% 34% 37% 35% 36% 36% 37% 41% 35% 28%

Source: Company, PL

As at the end of FY19, BAF’s NIM’s stood at ~11.3% which is at top rung among

NBFCs. This is largely a function of costs of funds deceleration (8.7% in FY17 to

7.9% in FY19) despite the turmoil in the NBFC space. BAF’s access to funding from

money markets (Rs 107bn: BAF, Rs 45bn: BHFL), banks (Rs 47bn term loans: BAF,

Rs 14bn: BHFL), retail and corporate depositors remained intact despite continued

challenges faced by NBFCs in Q4FY19. Q1FY20 also saw consistent liability

structure with least impact on the company’s ability to borrow while other NBFCs

facing continued challenges, we model 8.4-8.6% cost of funds over FY20-21E.

Sustenance of market share particularly in core consumer business and emphasis

on higher yielding rural business should ensure yields at 15% over FY20-21E.

While spreads stand of high order, incorporating rising share of lower yielding

products (housing/SME/rural loans), curbing of select portfolio disbursements on

grounds of prudency and maintenance of higher liquid assets on balance sheet, we

expect 60bps NIM compression to 10.7% over FY19-21.

Robust ALM, deepening liability

profile and strong pricing power has

enabled favourable positioning for

BAF in tight interest rate environment

Strong parentage, balance sheet

liquidity sufficiency and healthy

profitability has enabled stable

funding costs

Bajaj Finance

August 8, 2019 32

Yields to stabilize at 15%

19.3

%

19.1

%

18.2

%

18.1

%

18.0

%

17.7

%

16.2

%

16.5

%

15.4

%

15.0

%

13.0%

14.0%

15.0%

16.0%

17.0%

18.0%

19.0%

20.0%

Blended Yields

Source: Company, PL

CoF to stay at 8.6%

8.8

%

10.3

%

9.6

%

9.7

%

9.2

%

8.7

%

7.9

%

7.9

% 8.4

%

8.6

%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0% CoFs

Source: Company, PL

NIMs to soften; settle to <11% levels by FY21E

13.7%

12.3%

11.8%

11.1%

11.4%

11.8%

11.4%

12.0%

11.6%

11.2%

11.0%

11.5%

12.0%

12.5%

13.0%

13.5%

14.0%


NIM

Source: Company, PL

Scope for operating leverage continues to stay

During the period FY12-18, AUM CAGR came at 36% while operating expenses

grew at 33% CAGR as the company continued to invest in infrastructure,

technology, data and employee strength. Economies of scale have improved BAF’s

cost metrics over past few years. Cost to income ratio for BAF has declined from

46% in FY14 to 35.3% in FY19, as high growth and efficiency in operations have

reduced costs. However, we estimate a cost to income ratio at 35% for FY20 due

to sustained spends on 1) technology 2) rising employee base 3) distribution and

4) increasing presence in home loan segment. The same should decline to 33% by

FY21 as the company concludes the mortgage transition to the step-down

subsidiary.

With rise in fixed-rate borrowings and

a stable ALM structure, NIMs should

stabilize by FY21.

Bajaj Finance

August 8, 2019 33

Economies of scale leading to cost-income…

44.7%46.0%

45.1%43.1%

41.5%40.1%

35.3%35.4%

32.8%

30.0%

33.0%

36.0%

39.0%

42.0%

45.0%

48.0%

FY

13

FY

14

FY

15

FY

16

FY

17

FY

18

FY

19

FY

20E

FY

21E

Cost to income ratio

Source: Company, PL

…and cost to average asset metric improvement

5.3% 5.2%

4.8% 4.7% 4.7%4.5%

4.0% 4.0%

3.6%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

FY

13

FY

14

FY

15

FY

16

FY

17

FY

18

FY

19

FY

20E

FY

21E

Cost to Average Assets %

Source: Company, PL

Technology related expenses: BFL’s commitment to technological improvement

is reflected in its IT investments, which accounted for 2-4% of operating expenses

over FY12-FY17 or 4-5% of PAT over the same period. BAF is on the forefront of

technology usage amongst NBFC’s and banks which has not only increased its

efficiency but also growth rates. While last few years observed significant branch

and technology investments, the benefits should begin kicking in in next two years.

Continuous investment in IT & of highest order

151 209

295 379 580

928

1389

1645

1735

1840

0.13%0.13% 0.13%

0.13%

0.14%

0.17%

0.19%

0.16%

0.12%

0.10%

0.07%

0.09%

0.11%

0.13%

0.15%

0.17%

0.19%

0.21%

0

300

600

900

1200

1500

1800

2100


Information Technology Expenses ITE to Average Assets (RHS)

Source: Company, PL

Employee related expenses: Despite employee base and employee costs

growing 4x and 5x respectively over past 5 years, the profitability per employee

stands well in comparison with the top lender.

Bajaj Finance

August 8, 2019 34

Despite higher employee roll-out, BAFs output per employee is at par with HDFC Bank (Update)

Number Of Employees YoY growth Employee Cost (Rs mn) PAT (Rs mn) PAT/ Employee (x)

BAF

FY15 5,058 70.6% 4,507 8,979 1.78

FY16 7,394 46.2% 6,296 12,785 1.73

FY17 11,479 55.2% 9,317 18,365 1.60

FY18 15,266 33.0% 14,336 24,964 1.64

FY19 20,500 34.0% 19,409 39,950 1.95

HDB Financial Services

FY15 10,476 38% 3,122 3,495 0.33

FY16 16,508 58% 4,938 5,344 0.32

FY17 65,906 299% 18,967 6,988 0.11

FY18 74,049 12% 22,283 9,330 0.13

FY19 93,373 26% 25,517 11,532 0.12

HDFC Bank

FY15 76,286 11.9% 47,510 1,02,159 1.34

FY16 87,555 14.8% 57,022 1,22,962 1.40

FY17 84,041 -4.0% 64,837 1,45,496 1.73

FY18 87,983 4.7% 68,057 1,74,867 1.99

FY19 98,061 11.5% 77,618 2,10,785 2.15

Axis Bank

FY15 42,230 -0.4% 31,150 73,578 1.74

FY16 50,135 18.7% 33,760 82,237 1.64

FY17 56,617 12.9% 38,919 36,793 0.65

FY18 59,614 5.3% 43,130 2,757 0.05

FY19 66,768 12.0% 47,473 46,766 0.70

ICICI Bank

FY15 66,327 -8.2% 47,499 1,11,753 1.68

FY16 72,175 8.8% 50,023 97,263 1.35

FY17 82,841 14.8% 57,337 98,011 1.18

FY18 81,548 -1.6% 59,140 67,775 0.83

FY19 82,363 1.0% 68,082 33,633 0.41

Source: Company, PL; Note: HDB FIN SVCS employee no. stands exponentially higher owing to amalgamation with ADFC & HBL

While historically cost metrics have remained on higher side as the company

continued to foray into newer segments and geographies, going ahead, with

economies of scale in mortgage and rural business catching up due to sustained

AUM growth trajectory and variable costs stabilizing, operating leverage benefits

will flow through. Against this backdrop, we expect opex-AUM should decline to

3.7% in FY21 from higher levels of 6% in FY13.

Expect C-I at 33%, opex-assets at 3.7% for FY21

47%45% 46% 45%

43%41% 40%

35% 35%33%

6.5%

5.6% 5.5%5.1% 5.0% 4.9%

4.6%4.2% 4.2%

3.7%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%


Opex to NII Opex to AAUM (RHS)

Source: Company, PL

Opex growth on annual basis stands

lower to AUM growth YoY

Bajaj Finance

August 8, 2019 35

Healthy asset quality sustains despite robust growth

In spite of robust growth in AUM in last five years, company has been able to

maintain healthy asset quality. Evidently, impeccable underwriting process,

adequate checks with scores and substantial data analytics on the proprietary data

collected by them over many years, gives BAF an edge over the competition. We

continue to see <2% GNPAs over next two years as ECL provisioning also remains

under control.

BAF has sustained less than 2% GNPAs since 2012

1.2%1.1%

1.2%

1.5%

1.2%

1.7%

1.4%1.5%

1.7%1.8%

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

2.0%


GNPA %

Source: Company, PL

Strong show on earnings

Earnings growth for BAF have stood at 47.5% CAGR for past three years on the

back of (a) avg 40% YoY growth in NII led by avg 37% AUM growth (b) Pricing

power- avg 11% NIMs despite mortgage thrust and higher liquid assets on balance

sheet in FY19) and (c) Prudent asset quality (steady 1.2-1.6% GNPA past three

years).

Expect 32% earnings CAGR over next two years

46 7

9 13 18 25 40 52 69

65%

45%

22%25%

42% 44%

36%

60%

31% 33%

0%

10%

20%

30%

40%

50%

60%

70%

0

10

20

30

40

50

60

70

80


PAT (bn) Growth

Source: Company, PL

Responding to market challenges,

underwriting standards in digital

product financing, SME and B2C

financing business and auto financing

have been tightened (Q1FY20)

Overall GNPAs for FY19 stood at

1.5% and for Q1FY20 at 1.6%; still

below industry averages.

BAF continued to focus on product

granularity across geographies to

reduce risk and augment profitability.

FY19, therefore, witnessed better

margins, lower operating expenses

and improved risk metrics

Bajaj Finance

August 8, 2019 36

Du-Pont analysis- Estimate 3.7% RoA and 20% RoE over FY19-21

FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 Q1FY20 FY20E FY21E

Net Interest Income to Average Total Assets 12.55% 11.67% 11.11% 10.50% 10.79% 11.31% 11.08% 11.35% 7.64% 11.05% 10.75%

Other Income to Average Total Assets 0.08% 0.11% 0.19% 0.12% 0.10% 0.05% 0.02% 0.02% 0.01% 0.11% 0.11%

Total revenues to Average Total Assets 12.63% 11.78% 11.29% 10.62% 10.89% 11.36% 11.10% 11.37% 7.66% 11.16% 10.86%

Operational expenses to Average Total Assets 5.93% 5.26% 5.20% 4.79% 4.69% 4.71% 4.46% 4.02% 2.68% 3.96% 3.56%

Operating Profit to Average Total Assets 6.70% 6.52% 6.10% 5.83% 6.19% 6.65% 6.64% 7.35% 4.98% 7.21% 7.30%

Provisions to Average Total Assets 1.37% 1.12% 1.17% 1.29% 1.34% 1.48% 1.40% 1.44% 1.14% 1.61% 1.56%

ROA - PBT 5.34% 5.39% 4.93% 4.55% 4.85% 5.17% 5.24% 5.91% 3.84% 5.60% 5.74%

Return on Assets 3.60% 3.66% 3.25% 3.01% 3.16% 3.37% 3.40% 3.82% 2.48% 3.65% 3.72%

Average Equity to Average Total Assets 6.4 5.7 5.8 6.5 6.6 6.7 5.9 5.9 6.3 5.6 5.4

Return on Equity 24.12% 22.05% 19.58% 20.43% 21.09% 22.43% 20.05% 22.48% 23.56% 20.61% 20.12%

Source: Company, PL

Bajaj Finance

August 8, 2019 37

Superior Valuations justified

Bajaj Finance is among the few NBFCs to foster a business model that enabled it

to grow at a robust pace, significantly faster than some of its peers, making it the

second largest retail customer franchise without a banking licence. BAF’s consumer

lending business model stands difficult to replicate given the challenges pertaining

to build-up of distribution franchise and innovate products suiting varied consumer

needs. Not only BAF has combatted these challenges but has sustainably delivered

best-in-class performance with respect to growth on back of three key cornerstones:

Product innovation and AUM traction: BAF’s best-in-class NIM and AUM

traction has been result of continuous product innovation and offerings growing

each year.

Product launch history Up till FY08 FY09 & FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY17 FY18 FY19

CD financing Business Loan Construction equipment

finance EMI CARD

Lifestyle Product financing

CRISIL SME Rating

MSME Rural Lending

E-commerce - Seller finance

Co-branded Credit Card (RBL Bank)

Co-branded Credit Card (RBL Bank)

General vendor

financing

Specialty chemicals

lending

2W&3W financing

Loan Against Shares

Promoters LAS - Retail

Co-branded Credit Card

Home loans - Salaried

Consumer Finance

Fitness report

Property fitness report

Urban gold loans

Ecommerce - Consumer Finance

Ecommerce - Consumer Finance

Unsecured WC

Used car financing

Personal Loan Cross Sell

Vendor Financing

Home loans - Self Employed

Infra financing Lease Rental Discounting

General insurance distribution

Digital Product Finance

SME Financial Fitness report

EMI Card - Retail Spends

EMI Card - Retail Spends

Home loan rural

Gold Loans

Life Insurance Distribution

Extended warranty cross

sell

Professional Loans

Retailer

financing

Corporate Finance Business

Co-branded

Wallet

Secured enterprise loans in

SME

LAP Salaried Personal

Loans

Consumer Rural lending

Light

Engineering Business

LRD in SME

Relationship Management

Financial Institutions

Lending Business

Health

Insurance Distribution

Life Care Financing

Secured enterprise

loans in rural

Financial Fitness Report

Auto

Component Mfg. Lending

4 5 3 6 3 5 3 7 3 3 4 7

Source: Company, PL Consumer SME Rural Commercial Fee products

BAF’s business performance vis-à-vis product launch history

Parameters FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19

No. of Products added 5 3 6 3 5 3 6 3 4 7

Margins 21.6% 17.6% 13.7% 12.3% 11.8% 11.1% 11.4% 11.8% 11.4% 12.0%

AUM Growth 59% 88% 73% 34% 37% 35% 36% 36% 37% 41%

RoA 2.3% 3.7% 3.6% 3.7% 3.2% 3.0% 3.1% 3.2% 3.2% 3.5%

Source: Company, PL

Asset quality: Led by effective risk-pricing strategy, robust distribution model

aided by impeccable data analytics, and conservative underwriting BAF’s credit

costs remain under control supportive of earnings.

Capital sufficiency: BAF's comfortable capital levels and its strong market

position drive the company’s ratings. The strong capital position is supported

by high margins, low dividend pay-outs and periodic capital infusions with

conscious maintenance of leverage below 7 times continue to support rapid

growth.

Bajaj Finance

August 8, 2019 38

Robust growth coupled with sustainable ROE

Parameters (bn) FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19

Balance sheet 45.9 85.2 129.3 178.1 246.2 327.8 469.7 619.4 848.0 1242.3

Growth 52% 86% 52% 38% 38% 33% 43% 36% 33% 47%

Asset Under Management 40.3 75.7 131.1 175.2 240.6 324.1 442.3 601.9 824.2 1158.9

Growth 59% 88% 73% 34% 37% 35% 36% 36% 37% 41%

Earnings 0.9 2.5 4.1 5.9 7.2 9.0 12.8 18.4 25.0 39.9

Growth 164% 176% 65% 45% 22% 25% 42% 44% 36% 60%

PPoP 3.9 5.7 7.6 10.5 13.5 17.4 25.1 36.2 48.7 76.8

Growth 84% 45% 32% 39% 28% 29% 44% 44% 35% 58%

Return on Equity 8.0% 19.7% 24.1% 22.0% 19.6% 20.4% 21.1% 22.4% 20.1% 22.5%

Source: Company, PL

With customer franchise of 36.94mn, cross sell franchise of 28mn, 97,000+ point of

sales and asset base of Rs1289bn makes BAF as the best play in the retail

financing space.

BAF’s RoE gap v/s peers only widens thus commanding higher valuation multiple

Valuations AUM/Loan book (bn) RoA RoE NIM P/ABV

‘18 ‘19 ‘20E ‘21E ‘18 ‘19 ‘20E ‘21E ‘18 ‘19 ‘20E ‘21E ‘18 ‘19 ‘20E ‘21E ‘18 ‘19 ‘20E ‘21E

BAF 824 1,159 1,561 2,004 3.4% 3.8% 3.6% 3.7% 20.1% 22.5% 20.6% 20.1% 11.4% 12.0% 11.6% 11.2% 12.1 9.9 6.5 5.3

CIFC 314 406 483 570 2.3% 2.3% 2.3% 2.2% 19.6% 21.0% 21.3% 19.7% 6.5% 5.9% 6.0% 6.1% 4.9 3.8 3.2 2.7

HDFCB 5546 6583 8194 9751 1.8% 1.8% 1.9% 2.0% 18% 16% 16% 17% 4.2% 4.2% 4.3% 4.4% 5.6 4.2 3.7 3.2

HDFC 3,574 4,008 4,641 5,409 2.9% 2.2% 2.3% 2.1% 19.3% 15.3% 17.3% 17.4% 3.0% 3.0% 3.1% 3.1% 5.8 5.2 5.0 4.6

HDB Financial services

443 547 711 925 2.3% 2.3% 2.0% 2.11% 16.6% 17.4% 16.9% 20.1% 7.3% 6.8% 6.0% 6.0% * * * *

Source: Company, PL, Note: *HDB Financial services is an unlisted entity

BAF’s digital initiatives, strong customer franchise and strong cross-selling abilities

are expected to yield greater dividends going forward. We expect BAF to deliver

healthy return ratios - RoA at 3.3%, RoE at ~20%, GNPA at <2% over FY19-21E.

With strong growth momentum at 31% CAGR in AUM, PAT CAGR of 32% in FY19-

21E, BAF’s premium valuations (5.3x P/BV, 28.1x P/E FY21E) are expected to

sustain. Recommend BUY.

BAF’s premium valuation stay

EPS (Rs) Adj. Book Value (Rs.) P/E (x) P/ABV (x) ROE % ROA (%)

‘18 ‘19 ‘20E ‘21E ‘18 ‘19 ‘20E ‘21E ‘18 ‘19 ‘20E ‘21E ‘18 ‘19 ‘20E ‘21E ‘18 ‘19 ‘20E ‘21E ‘18 ‘19 ‘20E ‘21E

BAF 43.4 69.3 87.6 116.3 269.5 329.2 503.3 614.9 75.2 47.2 37.3 28.1 12.1 9.9 6.5 5.3 20.1 22.5 20.6 20.1 3.4 3.8 3.6 3.7

CIFC 11.7 15.2 18.6 20.7 55.7 71.0 86.3 102.4 23.2 18.0 14.7 13.2 4.9 3.8 3.2 2.7 19.6 21.0 21.3 19.7 2.3 2.3 2.3 2.2

LTFH 6.4 11.2 10.6 13.3 50.7 59.7 71.1 83.7 15.0 8.6 9.0 7.2 1.9 1.6 1.4 1.1 13.9 18.0 14.6 15.6 1.6 2.3 1.9 2.1

HDFC 66.7 55.9 67.4 70.5 373.1 420.0 433.1 474.6 32.6 38.9 32.3 30.9 5.8 5.2 5.0 4.6 19.3 15.3 17.3 17.4 2.9 2.2 2.3 2.1

LICHF 39.7 48.1 51.6 58.9 271.5 289.2 294.3 335.1 12.4 10.2 9.6 8.4 1.8 1.7 1.7 1.5 15.9 16.0 15.8 16.6 1.2 1.3 1.2 1.2

MMFS 18.0 25.3 19.5 18.1 123.3 123.9 162.6 176.9 16.4 11.7 15.2 16.4 2.4 2.4 1.8 1.7 13.1 15.2 10.4 8.9 2.2 2.6 1.5 1.1

SHTF 112.3 113.4 160.1 178.4 504.4 607.3 767.4 929.2 8.9 8.8 6.2 5.6 2.0 1.6 1.3 1.1 20.5 17.5 20.6 18.8 3.0 2.5 3.2 3.1

Source: Company, PL

Bajaj Finance

August 8, 2019 39

BAF trades at higher P/B band

1.2

2.2

3.2

4.2

5.2

6.2

7.2

8.2

Jul-15

Jan-1

6

Jul-16

Jan-1

7

Jul-17

Jan-1

8

Jul-18

Jan-1

9

Jul-19

P/ABV 3 yr avg. avg. + 1 SD avg. - 1 SD

Source: Company, PL

BUY for TP at 3,860; valued at 6.9x

PT calculation and upside

Fair price - EVA 3,030

Fair price - P/ABV 4,690

Average of the two 3,860

Target P/ABV 6.9

Target P/E 37.9

Current price, Rs 3266

Upside (%) 18%

Dividend yield (%) 1%

Total return (%) 19%

Source: Company, PL

Bajaj Finance

August 8, 2019 40

Annexures:

Key strategic partnerships

BAF’s long-time built partnerships provides competitive edge, customer franchise acceleration & growth

Particulars Partner group Benefits for BAF Benefits for the customers

Co-branded Credit Card

RBL Bank Offered to existing customers of BAF, enable cross sell opportunities

No-cost EMI card at POS, accelerated rewards for high savings, no interest on cash withdrawals up to 50 days.

Digital EMI Card Bajaj Finserv Wallet App

Enables cross selling for consumer durable/digital product

Allows bills payments, ticket bookings, deals redemption, all purchase payments, interest-free payments, easy online EMI card accessibility

Online Wallet & Payments App

MobiKwik

‘network effect’ of complementary payments (through Mobikwik e-wallet) and e-commerce (own online marketplace) businesses

-

Co-branded EMI Network Card

Future Group Cross sell opportunities strengthening franchise

Instant card generation through Bajaj Finserv Wallet app for Future group outlets, no cost EMI (amount ranging from 5000 to 1.15lac from 3 to 24 months.

SME/SSI Credit Rating services

Crisil Cross selling to the SME customer base

Preferential access to SME/SSI Credit Rating services with minimal documentation, quick processing; concessional rating fee

EMI Network Card Ruby Hall Clinic Cross selling for durable/personal loans

Financing of all lifecare needs (upto Rs0.45mn) at Ruby Hall Clinic (160+ treatments; 3 hospitals)

EMI Network Card Makemytrip / Yatra

cross sell opportunities Booking of air tickets and hotel at No Cost EMIs (12 months, >Rs4500)

EMI Network Card Amazon / Flipkart / Paytm-Mall

Cross selling to the existing consumer

No Cost EMI (>Rs4500, 12 months)

EMI Network Card Papperfry Cross selling to the existing consumer

No Cost EMI offerings, zero down payment, (5 months, >Rs 7,500).

Life / Health Insurance

Bajaj Alliance Life / HDFC Life / Future Generali Life / Bajaj Allianz General / Tata AIA General / Max Bupa Health

Enables cross selling Easy application process at no cost EMIs

Source: Company, PL

Bajaj Finance

August 8, 2019 41

Key Technological Initiatives

Adoption of newer/ emerging technologies with customers’ needs and preferences as a focal point

Year Technological Initiatives Utility factor Objective

FY18 Enterprise Data Warehouse (EDW)

Cloud based Enterprise Data Warehouse (EDW) processes and analyses complex data at a very large scale enabling quicker processing of very large data workloads.

Cross sell

FY18 Intelligent natural-language processing based BOT solution

Enhancement of its self-service mechanisms which provides customers self-servicing options.

Customer service

FY18 Net Promoter Score

Measuring outcomes at different life stages of customers, thus enabling it to objectively address areas of improvement thus strengthening customer loyalty process

Customer service

FY18 Mobikwik partnership

Enabling BFL to provide both debit and credit engagement tools for its existing customers. As a first step, the Company has launched a digitised EMI card for its existing and new customers in October 2017.

Customer service

FY17 Machine learning infrastructure

Facilitated fraud detection models, propensity-based lead management prioritisation and natural language based customer email reading capability and its allocation.

Operational efficiency - Fraud management

FY17 security governance framework/Security Operations Centre

Tackling growing cyber security risks. Operational efficiency

FY16 Mobile APP - Decision Support System (DSS) for unsecured SME businesses

Enabling acquistion of new customers in the Consumer Durable business and a new Customer Relationship Management for its Relationship Management business.

Customer service & operational efficiency

FY16 Disaster Recovery (DR) data Ensuring business continuity for customer acquisition, loan processing and servicing

Operational efficiency

FT14 Setting up of call centres, IVR, bi-directional SMS, email, online portal, mobile applications and branches.

Facilitating customers multi-channel engagement options

customers multichannel options - Customer service

FT14 Tie up with UIDAI - First NBFC Accessibility to the e-KYC customer database improving customer experience and business growth


FY13 Direct Cash Collection model & Kisan Mitra product for farmers

customers with no banking habits, Facilitation of loan repayments by using a cash repayment mode; repayments of instalments are synchronised to realisations from crops.


FY12 India’s fastest online personal loans facility allows the customer to obtain an approval for a loan up to Rs 15 lakh in 15 minutes using a digital medium.


Source: Company, PL

Channel checks corroborate BAF’s CD dominance:

Leveraging on the first mover advantage initiative over more than a decade, Bajaj

Finance has stood synonymous with consumer durable and lifestyle financing

business nationwide. Our channel checks of Croma store sin city suggest 60%

of floor sales stand financed by BAF followed by HDFC Bank and Capital First.

60% of Croma floor sales stand financed by BAF

Financier Scheme

Files/cases closure Credit

appraisal Rejection

Rate ATS

Bad cases per month

Incentive (INR / file)

Comment Per day

Diwali (12 days)

Diwali month

HDFC Bank

5% cash back (mainly on

Samsung/LG products)

- - - CIBIL

score:750 50% 5 to 6 75

Most Stringent credit evaluation process

Capital First

3-month downpayment, 7

month EMI 1 5 -

CIBIL score:750

50% 10000 10 to 15 100 TAT for first time

customer stands lengthy

Bajaj Finance

- - 183 (as

against 109 in 2017)

453 (as against 263 a year ago)

CIBIL score:750

50% 10 75

Issuance of BAF cards, BAF cardholders largely

contributed to incremental Diwali sales Stringent process (CIBIL > 750)

Source: Company, PL

Bajaj Finance

August 8, 2019 42

Income Statement (Rs m)


Int. Inc. / Opt. Inc. 1,27,444 1,84,851 2,50,554 3,18,623

Interest Expenses 46,139 66,236 92,224 1,18,141

Net interest income 81,305 1,18,615 1,58,330 2,00,482

Growth(%) 32.0 45.9 33.5 26.6

Non-interest income 124 167 1,574 2,050

Growth(%) (52.1) 34.1 844.3 30.3

Net operating income 81,429 1,18,782 1,59,904 2,02,533

Expenditures

Employees 14,336 19,409 26,235 31,652

Other Expenses 17,333 21,126 27,603 31,659

Depreciation 1,021 1,442 2,825 3,159

Operating Expenses 32,690 41,977 56,663 66,471

PPP 48,739 76,805 1,03,241 1,36,062

Growth(%) 34.6 57.6 34.4 31.8

Provisions 10,305 15,014 23,013 29,051

Profit Before Tax 38,434 61,792 80,228 1,07,011

Tax 13,471 21,842 27,950 37,573

Effective Tax rate(%) 35.0 35.3 34.8 35.1

PAT 24,964 39,950 52,278 69,438

Growth(%) 35.9 60.0 30.9 32.8

Balance Sheet (Rs m)


Source of funds

Equity 1,150 1,154 1,194 1,194

Reserves and Surplus 1,57,328 1,95,817 3,09,179 3,78,616

Networth 1,58,478 1,96,970 3,10,372 3,79,810

Growth (%) 75.1 24.3 57.6 22.4

Loan funds 6,65,572 10,15,879 11,92,337 15,70,077

Growth (%) 30.8 52.6 17.4 31.7

Deferred Tax Liability - - - -

Other Current Liabilities - - - -

Other Liabilities 23,932 29,476 45,605 77,703

Total Liabilities 8,47,983 12,42,325 16,22,963 21,06,957

Application of funds

Net fixed assets 4,703 6,948 7,046 8,201

Advances 7,91,025 11,25,128 15,60,707 20,03,605

Growth (%) 42.7 42.2 38.7 28.4

Investments 31,395 85,990 30,403 38,795

Current Assets 3,397 3,487 10,046 35,311

Net current assets 3,397 3,487 10,046 35,311

Other Assets 17,464 20,771 14,761 21,045

Total Assets 8,47,983 12,42,325 16,22,963 21,06,957

Growth (%) 36.9 46.5 30.6 29.8

Business Mix

AUM 8,24,220 11,58,888 15,60,707 20,03,605

Growth (%) 36.9 40.6 34.7 28.4

On Balance Sheet - - - -

% of AUM - - - -

Off Balance Sheet - - - -

% of AUM - - - -

Profitability & Capital (%)


NIM 11.4 12.0 11.6 11.2

ROAA 3.4 3.8 3.6 3.7

ROAE 20.1 22.5 20.6 20.1

Source: Company Data, PL Research

Quarterly Financials (Rs m)

Y/e Mar Q2FY19 Q3FY19 Q4FY19 Q1FY20

Int. Inc. / Operating Inc. 42,559 43,921 46,514 51,013

Income from securitization - - - -

Interest Expenses 15,673 17,857 19,132 21,134

Net Interest Income 26,886 26,063 27,382 29,879

Growth (%) 42.6 18.9 41.1 18.3

Non-Interest Income 404 23 8 70

Net Operating Income 27,290 26,086 27,390 29,950

Growth (%) 41.8 18.8 40.8 16.2

Operating expenditure 9,466 10,717 11,336 12,298

PPP 17,491 14,958 15,646 17,022

Growth (%) 38.6 53.4 39.3 118.1

Provision 3,146 4,508 4,093 5,507

Exchange Gain / (Loss) - - - -

Profit before tax 14,345 16,357 18,116 18,514

Tax 5,110 5,761 6,356 6,562

Prov. for deferred tax liability - - - -

Effective Tax Rate 35.6 35.2 35.1 35.4

PAT 9,235 10,596 11,761 11,953

Growth 54 54 57 43

AUM

10,02,170

10,99,30

0

11,58,88

0

12,88,98

0

YoY growth (%) 37.9 40.9 40.6 41.2

Borrowing 3,25,505 8,08,620 4,66,813 9,44,620

YoY growth (%) (35.7) 49.8 (25.2) 40.1

Key Ratios


CMP (Rs) 3,266 3,266 3,266 3,266

EPS (Rs) 44.5 69.4 89.1 116.3

Book value (Rs) 282.5 342.0 528.9 636.4

Adj. BV(Rs) 276.4 329.7 512.1 614.9

P/E(x) 73.4 47.1 36.7 28.1

P/BV(x) 11.6 9.6 6.2 5.1

P/ABV(x) 11.8 9.9 6.4 5.3

Asset Quality


Gross NPAs(Rs m) 11,600 17,327 26,376 36,466

Net NPA(Rs m) 3,500 7,088 9,989 12,823

Gross NPAs to Gross Adv.(%) - - - -

Net NPAs to net Adv.(%) 0.4 0.6 0.6 0.6

NPA coverage(%) 69.8 59.1 62.1 64.8

Du-Pont


NII 11.1 11.3 11.1 10.7

NII INCI. Securitization 11.1 11.3 11.1 10.7

Total income 11.1 11.4 11.2 10.9

Operating Expenses 4.5 4.0 4.0 3.6

PPOP 6.6 7.3 7.2 7.3

Total Provisions 1.4 1.4 1.6 1.6

RoAA 3.4 3.8 3.6 3.7

Avg. Assets/Avg. net worth 0.2 0.2 0.2 0.2

RoAE 20.1 22.5 20.6 20.1

Source: Company Data, PL Research

Bajaj Finance

August 8, 2019 43

Price Chart

Analyst Coverage Universe

Sr. No. Company Name Rating TP (Rs) Share Price (Rs)

1 Capital First UR - 495

2 Cholamandalam Investment and Finance Company BUY 322 260

3 Edelweiss Capital NR - 276

4 HDFC BUY 2,270 2,125

5 L&T Finance Holdings Accumulate 178 120

6 LIC Housing Finance Accumulate 550 496

7 Mahindra & Mahindra Financial Services Accumulate 527 396

8 Shriram Transport Finance BUY 1,481 1,063

PL’s Recommendation Nomenclature

Buy : >15%

Accumulate : 5% to 15%

Hold : +5% to -5%

Reduce : -5% to -15%

Sell : < -15%

Not Rated (NR) : No specific call on the stock

Under Review (UR) : Rating likely to change shortly

765

1512

2258

3004

3750

Au

g -

16

Feb

- 1

7

Au

g -

17

Feb

- 1

8

Au

g -

18

Feb

- 1

9

Au

g -

19

(Rs)

Bajaj Finance

August 8, 2019 44

ANALYST CERTIFICATION

(Indian Clients)

We/I, Ms. Shweta Daptardar- MBA-Finance Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

(US Clients)

The research analysts, with respect to each issuer and its securities covered by them in this research report, certify that: All of the views expressed in this research report accurately reflect his or her or their personal views about all of the issuers and their securities; and No part of his or her or their compensation was, is or will be directly related to the specific recommendation or views expressed in this research report.

DISCLAIMER

Indian Clients

Prabhudas Lilladher Pvt. Ltd, Mumbai, India (hereinafter referred to as “PL”) is engaged in the business of Stock Broking, Portfolio Manager, Depository Participant and distribution for third party financial products. PL is a subsidiary of Prabhudas Lilladher Advisory Services Pvt Ltd. which has its various subsidiaries engaged in business of commodity broking, investment banking, financial services (margin funding) and distribution of third party financial/other products, details in respect of which are available at www.plindia.com.

This document has been prepared by the Research Division of PL and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of PL. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security.

The information contained in this report has been obtained from sources that are considered to be reliable. However, PL has not independently verified the accuracy or completeness of the same. Neither PL nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein.

Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient's particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor.

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PL may from time to time solicit or perform investment banking or other services for any company mentioned in this document.

PL is in the process of applying for certificate of registration as Research Analyst under Securities and Exchange Board of India (Research Analysts) Regulations, 2014

PL submits that no material disciplinary action has been taken on us by any Regulatory Authority impacting Equity Research Analysis activities.

PL or its research analysts or its associates or his relatives do not have any financial interest in the subject company.

PL or its research analysts or its associates or his relatives do not have actual/beneficial ownership of one per cent or more securities of the subject company at the end of the month immediately preceding the date of publication of the research report.

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PL or its associates might have managed or co-managed public offering of securities for the subject company in the past twelve months or mandated by the subject company for any other assignment in the past twelve months.

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