Add Bajaj Finance Ltd For Target Rs.8,450 - Yes Securities
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‘Improvement in medium-term growth and earnings visibility’
Our view
Can Fin’s Q2 FY22 performance carried multiple positives like strong disbursements. BAF’s miss on PPOP and PAT should be seen in the context of higher growth investments (added 2000+ employees and distribution locations/points) and augmentation of Covid provionsing buffer by Rs3.5bn (now at 50 bps of AUM). Rather the co. delivered a 4% beat at NII level with NIM reaching a multi-quarter high aided by lower interest reversals (Rs3.2bn v/s Rs4.5bn in Q1 due to 50 bps GNPL reduction) and material 30 bps decline in CoF (despite co. raising long-term NCDs). Almost 25% of the opex constituted debt management cost (collections/recovery efforts from OD, NPL and written-off accounts), and it was higher 1.8x qoq at Rs5.2bn.
Satge-3 reduction was seen across products. Non-overdue OTR book rose to Rs15.1bn (0.9% of AUM) with incremental restructuring of Rs4.3bn (largely mortgages) in Q2. There was 25% reduction in non-OTR Stage-2 assets from June levels, and this too was across business segments. Excluding the addition to Covid buffer, the credit cost in Q2 FY22 was near pre-Covid level (Q3 FY20) at 2.3%. Management expects further significant reduction in GNPA to 1.7-1.8% by March 2022, and thus estimates credit cost for FY22 to be Rs43bn (Rs30.5bn in H1). Barring auto finance segment (6% of AUM) which de-grew by 5% qoq, portfolio growth was sequentially strong across product segments (consumer sales finance grew 12% and securities lending grew by 16%). Co. expects AUM growth to remain strong for balance of the year.
We have marginally raised FY22-24 earnings and ABV estimates on lifting of growth assumption considering more visible tailwinds of strong recovery in consumer/housing finance and enhanced customer cross-sell/acquisition velocity from the omnipresence strategy (app/platform based customer engagement offering high convenience to purchase, finance, pay, invest, insure, etc.). Improvement in medium-term growth/earnings visibility and monetization opportunities from fintech/platform strategy would support high stock valuation at 8x FY24 P/ABV. Retain ADD rating with enhanced 12m PT of Rs8,450.
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