MOSL: BAJAJ FINANCE (Buy) -Heads I win, Tails I don’t lose much-Laying the foundation for the next decade

​BAJAJ FINANCE: Heads I win, Tails I don’t lose much; Laying the foundation for the next decade

(BAF IN, Mkt Cap USD17.1b, CMP INR1924, TP INR2300, 20% Upside, Buy)

• We recently met with the heads of Bajaj Finance’s (BAF) SME, Rural, Commercial and Risk Management operations. We were enthused by the company’s efforts to lay the foundation for the next phase of its journey – BFL 2.0.
  
• Furthermore, the recent QIP equips the company with the much-needed ammunition to sustain its 30%+ AUM growth trajectory over the foreseeable future, and importantly, without any EPS dilution.
  
• For FY18-20, while our new EPS estimates are marginally accretive, our BVPS estimates have been upgraded by 20-30%. We believe that valuations must be viewed in relation to the overall market and the company’s continued outperformance versus peers. Confident about management’s planning and execution, we expect BAF to outperform its peers, and thus, do not foresee any meaningful multiple contraction over the medium term. We raise our target price to INR2,300 (6.0x Sep 2019E BVPS). Buy.
  

A tech enterprise in the business of finance

• ​One of the key themes resonating in all our meetings was the large-scale use of technology and analytics in all aspects of the business. For example, the company uses the vast digital footprint available, along with other sources of data (such as credit bureaus), to assess customer creditworthiness even before a loan application is made. The company then approaches the customer with a pre-approved loan, which not only improves customer satisfaction, but also significantly reduces the turnaround time. For example, the turnaround time for a pre-approved mortgage is one day compared to 15 days for peers. BAF has already pre-approved loans for 0.9m doctors across the country, and targets to pre-approve for 2-3m SMEs in the country over the next 18-24 months. BAF has upgraded its data systems, and is improving its lending management systems to scale up the volume of CD loans from 11m per year to 25m per year in the next three years.