IGI Logo

Strong quarter; pushing the pedal on tech investments

In 4QFY22, Bajaj Finance (BAF) delivered a strong PAT of INR 24.2bn (up, 14% QoQ / 80% YoY) aided by lower credit costs (as % of avg. loans: 153bps vs. 251bps QoQ / 346bps YoY). Opex continued to be at elevated levels (up, 1% QoQ / 30% YoY) and CIR was at c.35% (largely unchanged QoQ and YoY), given investments in teams and technology for business transformation. Other highlights of the quarter are: a) customer franchise inched-up to 57.6m (up 4% QoQ) with cross-sell franchise at 32.8m (up 5% QoQ), b) AUM growth was strong at 9% QoQ / 29% YoY, driven by Commercial (40% QoQ / 91% YoY), c) Margin (NII/AUM) was at 12.8% (down 95bps QoQ / up 25bps YoY) to 13.8%, partially impacted by large AUM base albeit CoF stabilised QoQ at 6.7%, d) NII expanded 2% QoQ / 26% YoY, e) asset quality continued the improving trend as GS3 ratio sequentially declined to 1.6% (vs. 1.7% in 3QFY22), and GS2 ratio (incl. 0.4% of OTR) dropped to 2% (vs. 2.9% in 3QFY22). On concall mgmt. mentioned: i) a potential banking licence is not on agenda in the near to medium term (2-3yrs), ii) it is evaluating recent RBI guidelines on providing credit cards and will take a call accordingly (though it continues to have partnership with RBL and DBS), iii) it will offer a platform agnostic experience to users by developing website which will have identical UI / UX to digital app. The company would remain in investment mode for payment and financial services business through higher opex and capex to enhance customer experience. As is the case with BAF, it will continue to build long term sustainable and profitable businesses, where payments will be used as a tool to drive throughput on the app and website. Maintain BUY with unchanged TP of INR 9,000.

*AUM growth remained in good stead: Customer franchise stands at 57.6m (up, 4% QoQ / 19% YoY) and cross-sell franchise at 32.8m (up, 5% QoQ / 22% YoY), as of 4QFY22. In 4QFY22, new loans booked were 6.3m (down 15% QoQ) and new to Bajaj (NTB) customers were 2.2mn (down 15% QoQ) which were primarily due to seasonality. Not withstanding these, AUM expanded 9% QoQ / 29% YoY, led by Commercial (40% QoQ / 91% YoY) and Rural (up, 6% QoQ / 32% YoY). Furthermore, Securities Lending Business (up, 15% QoQ / 79% YoY) also continued the healthy momentum. However, Consumer B2B - Auto Finance (down, 4% QoQ / 16% YoY) remained under stress. We estimate 26% AUM CAGR over FY22-24E.

*Asset quality continued the improving trend: In 4QFY22, one large B2B commercial account (BAF exposure: INR 3.9bn i.e. 12.5% of GS3) slipped into. However, asset quality further improved sequentially as GS3 ratio declined to 1.6% (vs. 1.7% QoQ). In 3QFY22, BAF changed its NPA upgradation and classification criteria in line with the RBI circular which did not negatively impact asset quality. GS2 ratio dropped to 2% (vs. 2.9% in 3QFY22). NS3 ratio declined to 0.7% (down 10bps QoQ). Coverage on GS3 increased 240bps QoQ to 58%. Restructured book (OTR) shrunk to 0.4% of AUM (vs. 0.7% QoQ). Mgmt. overlay is kept intact at INR 10.8bn (c.1% of avg. AUM) as a cautionary measure if Covid resurfaces, otherwise, mgmt. will take a call to reduce it after 2 qrtrs. In 4QFY22, credit costs (as % of avg. loans) declined to 153bps (vs. 251bps QoQ / 346bps YoY) and were in the guided range of INR 48-50bn for FY22. We envisage credit costs of up to

*Costs remained at elevated levels attributing to business transformation: Operational performance was decent (PPOP expanded 1% QoQ / 30% YoY) in light of higher cost (up, 1% QoQ / 31% YoY) to develop digital capabilities. CIR broadly remained steady QoQ at 35%. Mgmt. opined CIR would at similar levels (35%) in FY23. NII expanded 2% QoQ / 26% YoY. Margin (NII/AUM) was at 12.8% (down 95bps QoQ / up 25bps YoY) to 13.8%, partially impacted by large AUM base albeit CoF stabilised QoQ at 6.7%. However, mgmt. remains focus on margins and will not compromise it for growth. We estimate CIR to be in the guided range, aided by healthy NII CAGR of c.25% over FY22- 24E.

*Creation of a digital web platform – reinforcing Omnichannel strategy: In 4QFY22, the company added net 2.6m users on its digital app platform (vs. 3.6m in 3QFY22) while it intends to add 14-16m net new users in FY23. The company has net 19.1m active users on its digital app platform as of 4QFY22 (vs. 16.5m QoQ) and aims to expand it 33-35m in FY23. Mgmt. announced it will create a digital website to offer a platform agnostic experience to users which will have identical UI / UX to digital app. Once implemented, the digital web platform will offer a similar experience across both app and web and customers will be able to commence journey on one platform and conclude on the other platform. The web platform will utilize infrastructure layer developed for app. Phase-1 of web platform will go live by Oct’22 and Phase-2 by Mar’23.

*Maintain BUY with TP of INR 9,000: The company would remain in investment mode for payment and financial services business through higher opex and capex to enhance customer experience and will eventually monetise these. Given superior business model - not relying on regulatory arbitrage and treading through various macro challenges without any long term impact, we believe BAF is well placed to reinstate its profitable growth with Omnichannel strategy. We believe the company is poised to deliver superior profitability with PAT CAGR of 39% over FY22-24E and sector-leading ROA / ROEs of 4.5% / 23% in FY24E. We maintain BUY with unchanged TP of INR 9,000.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://www.jmfl.com/disclaimer

SEBI Registration Number is INM000010361

Above views are of the author and not of the website kindly read disclaimer