Published on 9/07/2020 12:12:19 PM | Source: Emkay Global Financial Services

Hold Bajaj Finance Ltd For Target Rs. 2150 - Emkay Global

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Slowing growth; improving collections

* Bajaj Finance (BAF) has reported Rs1.38tn in AUM (down 6% qoq/up 7% yoy), slowest growth in the past 10 years.

* Slowing growth (in spite of lower repayments) is an indication of relatively faster run down of book (with shorter maturity) and a steep cut in disbursements amid Covid-19 lockdowns.

* Growth in new loans (-76.7% yoy) and overall customer franchise (+16% yoy) have come off sharply. Considering cautious management approach, the declining trend is expected to continue even during Q2FY21 as well.

* BAF remains in liquidity conservation mode, reporting a liquidity surplus of Rs176bn.

* The AUM under moratorium (based on count of customers) has declined from 27% as of April 30, 2020, to 15.5% as on May 30, 2020, which is a positive surprise. However, we also need to keep an eye on the overall trend in bounce rates (~37% during Q4FY20) as well as absolute quantum of moratorium pending, which would be a key aspect for future provisioning requirement.

* The release does not specify segment wise moratorium however we remain more sceptical of overall collections for 2W/3W and consumer durable segment,

* BAF has stated that it may consider additional accelerated provisioning for Cvoid-19 in Q1FY21 as well.

* We remain appreciative of BAF’s superior liability franchise and strong collection network. However, a clarity over asset quality would only emerge after the lockdowns and completion of the moratorium


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