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MOSL: BAJAJ FINANCE (Annual Report Update)- Profitability improving; High fee income, low expense ratio – key drivers of RoA improvement

BAJAJ FINANCE (Annual Report Update): Profitability improving; High fee income, low expense ratio – key drivers of RoA improvement

(BAF IN, Mkt Cap USD26.1b, CMP INR3260, TP INR3550, 9% Upside, Neutral)

 

• Bajaj Finance's (BAF) AUM growth has been driven largely by volumes. Growth in its customer base accelerated to 32% YoY in FY19 from 28% over the prior two years. At the same time, the number of new loans disbursed increased at a consistent pace of ~50% YoY in the year, in line with past trends.
• 'EMI card' is gaining strong traction. Notably, the number of EMI cards outstanding has more than tripled over the past three years to 18.5m. More importantly, the share of new loans booked via EMI cards increased meaningfully from 22% in FY16 to 49% in FY19. Note that the EMI card not only reduces opex for the company but also results in lower credit cost (as the card is used by an existing customer).
• While BAF toned down its 2W disbursements in FY18, it did the opposite in the subsequent year (number of 2Ws financed by BAF increased 50% YoY to 1.02m in FY19). Outstanding AUM now stands at INR97b, almost equal to that of HDFCB. Interestingly, the average ticket size increased from INR56k in FY16 to INR81k in FY19 - higher than that of most peers.
• Fee income has grown faster than the balance sheet. Total fees more than doubled from INR8b to INR17b YoY in FY19. The key driver was ~3x increase in distribution income to INR6.6b during the year. With fee income at 1.7% of average AUM in FY19, BAF is one of the highest fee income generators under our coverage universe (others are sub-1%).