Published on 25/11/2020 12:18:17 PM | Source: Motilal Oswal Financial Services Ltd

Update on Bajaj Finance Ltd By Motilal Oswal

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Slow quarter for disbursements; Focus on liquidity

* Bajaj Finance (BAF) reported key data for 2QFY21.

* Business volumes in the quarter were at 50–60% of YoY levels in terms of number of loans disbursed and number of new customers acquired. The company acquired 1.2m new customers in the quarter (compared with 1.9m YoY), taking the overall customer base to 44.1m.

* While the number of loans disbursed doubled sequentially, it was down ~45% YoY to 3.6m. We expect the company to have seen healthy traction in consumer B2B loans and to have gone slow in consumer B2C and SME lending.

* As a result, AUM was largely flat both QoQ and YoY at INR1.37t. We believe the upcoming festive season would be key for the growth trajectory for FY21.

* Liquidity on the balance sheet improved 9% QoQ to INR223b (16% of AUM). The deposit book grew 5% QoQ to INR216b.

* The sharp decline in disbursement volumes has come as a bit of a disappointment (in the context of healthy trends witnessed by peers such as HDFC). Nevertheless, we believe it is a good strategy to curtail disbursements in this uncertain environment. In our opinion, this stance is likely to continue for another quarter or so. Hence, we now cut our FY21 AUM growth estimate to 6% from 12% earlier. Margins are likely to be stable as the drag due to excess liquidity is offset by lower cost of funds. Given the collection efficiency performance across various asset classes in the industry, we keep our credit cost estimate of ~4.5% for FY21 largely unchanged. We cut our FY21/FY22E EPS estimates by 8%/4%. With normalization expected from the next fiscal, RoE is likely to rebound to 19% in FY23E from 12% in FY21E.


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