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Strong sequential AUM growth aided by healthy new customer acquisitions

* Bajaj Finance (BAF) reported healthy customer acquisition numbers with 2.6m new customers added during the quarter. Absolute customer acquisition run-rate surpassed pre-COVID levels, while the quarterly run-rate growth of total customer franchise was broadly similar to the last four quarters. Total customer franchise rose to 55.4m (up 4.9% QoQ / 19.6% YoY).

* New loans booked grew 17% QoQ at 7.4m (v/s 6.04m YoY) and were just 4% below the number of new loans booked in the pre-COVID festive quarter. The share of new customer loans to overall loan originations remained largely stable at ~35% (v/s ~37% in the previous quarter and ~30% in 1QFY21 during the peak of the first COVID wave). While this suggests that BAF has been gaining a larger share of its customer wallet, it also indicates lower risk appetite to lend to newer customers.

* AUM grew ~8.6% QoQ to INR1.81t (+26% YoY), ahead of our expectations of 6.5% QoQ growth. In our view, the company has witnessed healthy traction across product segments (except maybe for auto finance where it has been slowing down intentionally). Adjusted for IPO financing, consolidated AUM rose INR145b in 3QFY22.

* The consolidated liquidity surplus reduced to INR143b (from INR165b QoQ) and stood at ~8% of AUM v/s ~10% in 2QFY22. This indicates excess liquidity has been deployed for loan growth leading to lower negative carry, which would aid margins. We note that BAF had entered 3QFY22 with a higher liquidity position to prepare itself for the festive season well in advance.

* BAF highlighted that the recent RBI guidelines on NPA recognition should not have any adverse impact on its NPA position, suggesting that the FY22 credit costs should then be within guided levels of ~INR43-44b.

* Deposits recorded a healthy sequential growth of ~4.5% and rose ~26% YoY to INR300b.

* CRAR remained healthy at 27%, and BAF still has the best capital adequacy among the large NBFCs.

* BAF’s ~9% QoQ growth in reported AUM indicates encouraging disbursement volumes. As highlighted earlier, 2HFY22E margins are likely to expand as the negative carry from excess liquidity declines. The 3QFY22 business update seems to suggest that there has been a rapid normalization across business segments and this trajectory could continue in 4QFY22 as well (even though a major third COVID wave could play a spoiler).

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