MOSL: BAJAJ FINANCE | Annual Report Update-Superior execution; New products showing healthy traction

Bajaj Finance | Annual Report Update: Superior execution; New products showing healthy traction

(baf IN, Mkt Cap USD20.4b, CMP INR2570, TP INR2400, 7% Downside, Neutral)

Superior execution across products, focus to increase new growth/profit avenues (rural lending, housing finance companies (HFCs), cross-selling, etc.) and strong focus on asset quality are the key highlights of the FY18 Annual Report (AR). With the strong treasury management (move towards capital market linked borrowings/deposits), positive assets liability management (ALM) gap and with pricing power on the focused segments, BAF spreads are likely to be stable. However, margins may moderate with the leverage on the balance sheet coming into play. Asset quality performance remains impeccable with GNPA of 1.48% and PCR of 75% (as of FY18). On back of rich valuation, we reiterate Neutral with target price of INR2,400 - 6x PBV–Unchanged.

 Strong growth in retail lending; New products showing healthy traction

In the past three years, BAF introduced eleven new products, primarily across the consumer and commercial lending segments. The company financed 10m (+38% YoY) consumer durable loan contracts in FY18, which is almost double from the volumes of FY16. It also financed ~700,000 e-commerce transactions during the year, which has increased 4x from FY17. Digital product store outreach has increased ~3x during FY15-18 to 15,900 stores. As of FY18, BAF had an outstanding base of ~13m EMI cards and a co-branded credit card with RBL of ~0.4m.