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Record quarter; promising outlook

Bajaj Finance Ltd (BFL) is a leading non-banking financial companies (NBFC) in India. It is engaged in lending across retail, SME and commercial customers and accepts public and corporate deposits.

* In Q1FY24, net interest income (NII) rose 26.5% YoY to Rs. 8,395cr. PAT increased 32.4% YoY to Rs. 3,437cr, aided by better operating leverage.

* The company reported its highest ever quarterly AUM growth of Rs. 22,718cr.

* Asset quality was strong, with GNPA/NNPA ratios at 0.87%/0.31%.

* Market leadership, strong distribution reach, healthy customer addition, digital transformation, robust AUM growth and strong asset quality augur well for the company’s future performance. NIM levels may moderate in the upcoming quarters due to rising cost of funds, but we firmly believe in the company’s long term growth prospects. Therefore, we reiterate our BUY rating on the stock with a revised target price of Rs. 8,252 based on 6.1x FY25E BVPS.

Highest ever quarterly AUM growth

BFL’s interest income grew 34.6% YoY to Rs. 12,498cr, while interest expenses rose 55.1% YoY to Rs. 4,103cr. In effect, NII came in at Rs. 8,395cr (up 26.5% YoY). Opex to NII improved 190bps YoY to 34.0%. Subsequently, profit after tax (PAT) grew 32.4% YoY to Rs. 3,437cr. The company delivered its highest ever quarterly AUM growth of Rs. 22,718cr. AUM stood at Rs. 2,70,097cr (up 32.4% YoY), largely driven by 26.5% YoY growth in the mortgage business, 30.7% YoY growth in urban B2C and 35.5% YoY growth in SME lending. B2B disbursements were up 37.1% YoY to Rs. 22,625cr. ROE/ROA ratios stood at 24.47%/5.42% (vs. 23.07%/5.33% in Q1FY23).

Strong asset quality

BFL recorded its highest ever new loans in a quarter, at Rs. 9.94mn (vs. Rs. 7.42mn in Q1FY23). The deposits book grew 46.5% YoY to Rs. 49,944cr (~21% of consolidated borrowings). Asset quality was strong, with GNPA/NNPA ratios at 0.87%/0.31% (vs. 1.25%/0.51% in Q1FY23). Provision coverage ratio (PCR) stood at 65.0% (up 5.0% YoY). The capital adequacy ratio (CAR) was 24.6% and the Tier-I ratio was 23.0%, well above regulatory requirements.

Key quarter highlights

* Customer base stood at 73.0mn. The company recorded its highest ever new customer addition of 3.84mn in Q1FY24. It is optimistic about adding 12mn new customers in FY24.

* 95 new locations and over 12,500 distribution points added during the quarter. Geographic footprint stood at 3,828 locations and 1,67,000+ distribution points.

* Consolidated lending AUM mix was as follows: urban 33%, rural 10%, SME 13%, commercial 13%, and mortgages 31%.

Outlook and valuation

BFL delivered a superior performance in Q1FY24. The company’s market leadership, omnipresence strategy, healthy customer additions, sustained focus on digital transformation, and strong asset quality augur well for its future performance. With strong AUM growth in Q1FY24, the management has revised its AUM growth guidance upwards, to 29.0-31.0% YoY in FY24. NIM levels may moderate in the upcoming quarters owing to the rising cost of funds. However, we firmly believe in the company’s long-term growth prospects. Therefore, we reiterate our BUY rating on the stock with a revised target price of Rs. 8,252 based on 6.1x FY25E BVPS.

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