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Long term prospects intact…

Bajaj Finance posted a steady set of numbers on the business and operational front with QoQ improvement in AUM, profitability being boosted by lower provisions. With high frequency risk, collections not warranting risk stance change guidance remains the same. Hence, it is a welcome sign.

During the quarter, AUM growth on a sequential basis was at a multi quarter high of 6.5% at | 152947 crore led by 6.1% QoQ rise in mortgage book, while SME, consumer B2C and securities lending also showed respectable growth. The company during the quarter acquired 22.6 lakh new customers vs. 21.9 lakh QoQ and total customer franchisee for the quarter was at 4.8 crore representing growth of 14% YoY. The quarterly new customer addition was within their general guidance of 70-80 lakh new customer acquisition in a year.

Net interest income was marginally down 0.5% YoY but increased 8.4% QoQ to | 4655 crore. Interest reversals for the quarter were at | 298 crore vs. | 122 crore YoY, | 450 crore QoQ. Opex increased ~16% QoQ owing to rise in business activity and as a result C/I ratio was up from ~32% to 34.5% QoQ. Provisions came in at | 1231 crore, lower than our estimate. As a result, PAT was higher at | 1347 crore, up 42% YoY, 17.5% QoQ.

Asset quality improves

For Q4FY21, overall asset quality improved as GNPA and NNPA declined to 1.79% and 0.75% from proforma levels of 2.86% and 1.22%, respectively. The company had a write-off of ~| 2000 crore during the quarter, which partially aided NPA decline. Bajaj Finance has done accelerated write-offs of | 1530 crore due to Covid related stress and still holds management overlay and macro provisions of | 840 crore.

Non overdue one-time restructuring (OTR) book was at | 1739 crore (1.13% of book) as of March 31, 2021. This includes secured exposures of | 918 crore, one large B2B retailer account of | 397 crore and | 424 crore of unsecured assets. ECL provision was at | 328 crore (19%). Bounce rates are close to pre-Covid levels while collection efficiencies across buckets is better than pre-Covid level.

Valuation & Outlook

Bajaj Finance has sailed through the headwinds and emerged stronger with a leaner operating model and robust growth guidance. The management not changing the stance and expecting the current loss in Q1 due to the second wave to be largely covered in the next three quarters remains a positive scenario for the stock.

We expect 20%, 22% growth for FY22E, FY23E and PAT growth of 40%, 31% (marginal revised upwards by 6%), respectively. RoE is seen returning to ~15-16% and RoA at >3%. Possibility of application for banking licence is also an added positive. We believe premium multiples will be maintained for Bajaj Finance and accordingly value the stock at 6.7x FY23E. We maintain target price of | 5900. We maintain BUY rating

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