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MOSL: BAJAJ FINANCE (Neutral)-Strong quarter, but watchful in certain products

Bajaj Finance: Strong quarter, but watchful in certain products

(BAF IN, Mkt Cap USD27.5b, CMP INR3266, TP INR3550, 9% Upside, Neutral)

 

• PAT grew 43% YoY to INR12.0b (in-line) in 1QFY20. The quarter was characterized by continued strong AUM growth and stable margins/asset quality.
• AUM increased 41% YoY to INR1.3t, led by strong growth across segments, barring commercial lending. Adjusted for the IPO funding book, AUM growth was at 38% YoY.
• AUM growth in consumer B2B financing was robust at 31% YoY, driven by 60%+ YoY growth in 2W/3W finance. In 2W lending, BAF financed 51% of Bajaj Auto's 2W sales v/s 44% in 4QFY19 and 34% in 1QFY19.
• Margins (calc.) were sequentially stable at 12%, with cost of funds largely stable at 8.5%. The borrowing mix was mostly stable QoQ, with the share of bank/market borrowings at ~33%/50%.
• Asset quality remained stable, with the GNPL ratio at 1.6% and PCR at 61%. However, BAF experienced an increase in overdues in certain products, such as digital product financing and 2W/3W financing.
• As a result, management has decided to cut fresh disbursements by 15-18% in digital products, and by 10-12% in SME and consumer B2C.
• On the liability side, the company continues gaining traction in deposits, the share of which in total borrowings increased ~500bp YoY to 14%.
• Fee income continues growing faster than the balance sheet - it was up 65% YoY to INR5.7b.
• Bajaj HFC: Its book now stands at ~INR220b v/s INR72b in the year-ago period. It reported PAT of INR0.7b. Asset quality was largely stable, with the GS3 ratio at 0.06% and PCR at ~35%.