EUR 120.00 For Business Accounts Only

MOSL:BAJAJ FINANCE: Beat on earnings; momentum to only get stronger from hereon

• Bajaj Finance (BAF)'s 1QFY23 PAT grew 160% YoY/7% QoQ to ~INR26b (17% beat). The company posted a healthy operational performance driven by robust customer additions, new loan acquisitions and strong velocity aided by its omni-channel strategy and digital ecosystem.
• NIM (calculated) expanded ~40bp QoQ to 13.2% supported by a ~15bp QoQ decline in the cost of borrowings. We, however, estimate NIM to contract ~40bp YoY in FY23 due to BAF's limited ability to pass on the increase in borrowing costs against a large fixed-rate loan book and an absence of significant IPO financing (under the new RBI guidelines).
• GS3/NS3 improved ~35bp/~15bp QoQ to 1.25%/0.5%, respectively. OTR book classified under Stage 2 stood at INR4.74b (~23bp of AUM) and BAF carried provisions of ~INR1.1b (~23%) on this book in 1QFY23.
• We model an AUM CAGR of ~26% and PAT CAGR of 35% and expect BAF to deliver an RoA/RoE of 4.4%/22% in FY24E, respectively. We would remain watchful of the various developments on BAF's payment offerings and potential foray into the credit card business. Reiterate BUY with a TP of INR7,320 (premised on 7x FY24E BVPS).

 

Confident of healthy run-rate in customer acquisitions; AUM growth to track its long-term guidance

• BAF's customer franchise rose to 60.3m (up 5% QoQ and 20% YoY). New loans booked grew 60% YoY to 7.4m (on a low base hurt by Covid). The number of new loans booked should be seen in the context of the strategic decision of BAF to originate a lower quantum of REMI and short-term wallet loans. Management guided for 9-10m new customer acquisition run-rate in FY23E.
• Core AUM (adjusted for IPO financing) increased ~INR119b in 1QFY23 and was up 31% YoY/6% QoQ to INR2.04t. Sequentially, growth was driven by Consumer B2B (+5%), Consumer B2C (+6%), Rural (+10%), SME (+6%) and Mortgages (6%). Auto Finance (-2% QoQ) and complete absence of IPO financing receivables were the drags in the quarter.

Opex to remain elevated in FY23E led by investments in technology and human capital

• Management guided for an Opex-to-NII of 35%-36% in FY23 due to investments in technology and aggressive onboarding of the talent pool across multiple domains (particularly in payments).
• Opex-to-NII ratio stood at ~36% in 1QFY23. We believe that the opex ratio will continue to remain elevated in FY23-FY24 as BAF invests in building capabilities for its payments ecosystem along with associated sales promotion/customer acquisition expenses.

 

Strong risk management underpinning healthy asset quality performance

• GS3/NS3 declined ~20bp/10bp QoQ to 2.1%/1.7%. PCR on S3 loans declined ~250bp QoQ to ~22%. GS3/NS3 levels were the best-ever in the past six years.
• Credit costs stood at ~150bp (annualized) and included the impact of INR1.9b towards one large B2B commercial account that was written-off in 1QFY23. Management guided for credit costs of 1.35%-1.45% (of average assets) in FY23.