Bajaj Finance Limited

(Pod85) #245

Can you elaborate with a few examples

(phreak) #246

@poddy - This is not based on anecdotes and examples. The research was done at UCLA and the paper is available here. A summary of the research is available here.

(Abhishek Basumallick) #247

Interesting discussion going on. What is interesting is I see two distinct and opposing mindsets at play here - i) value mindset and ii) momentum mindset. The value mindset folks come to the party with a mindset of a fixed valuation (PE/PB/etc) whereas the momentum investor comes with a business growth justifies all valuations (and who knows what the right PE/PB is) mindset. Ideally, these are two distinct styles of investing. End of the day, once needs to be true to oneself and one’s own style. Those who are successful having a value mindset, should stick with that and vice versa. Trying to become a momentum person when inherently one is a value person will lead to failure (and vice versa).

Whether Bajaj Finance is expensive or cheap needs to be evaluated in this context as well. It will appear differently based on one’s mindset.

BTW, I dont think most people have read and undestood Buffett well enough to comment or critique intelligently. His market holiday concept is not what is mentioned here. Folks need to study it in much greater detail to ensure they are making the correct inferences.

(Krishnaraj) #248

As a nosy Buffett follower, this was against the grain of what I have all read and followed about Buffett.

So I dug into the paper you provided (attached) SSRN-id16350611.pdf (303.0 KB)

This follows Buffett’s holdings from 1980 to 2006 and on page 10 it says 30% of the stocks were held for less than a year and median holding period is a year.

This is damn surprising. We may however cross check it with his letters where he outlines his stock holdings end of Dec of the year. And iirc, he never had more than 7-8 holdings that constituted bulk, or all, of listed portfolio. So where’s the dichotomy?

  1. Many stocks may have been bought and sold during the year, which would escape yearly statement. We know Buffett was also a great special situation player and such situations do not lend themselves to long duration.

1.1 While median holding of stocks in the portfolio was 1 year, we also need to know the value as % of portfolio of the stock that were sold. If they are small as compared to total, for eg, if bulk of the stocks accounted for less than 10% of portfolio, then the hypothesis that they were for special situations strengthen.

  1. In 1996, Geico became a subsidiary of BRK, and thus the investment portfolio of Geico, managed by Lou Simpson also came to be reported under SEC 13F. As a result the trades of BRK would include both, those of Buffett and those of Geico, which was independent of Buffett.

Nevertheless this is a very interesting finding. All in all, I should add that Buffett’s knowledge, acumen and financial genius and business genius are off the charts.His levels of integrity are, even to my skeptical mind, exceptional. He is literal (says as precisely as language can allow, what he means) and I have often found myself to be wrong when I thought there was a difference between his words and actions.

Off topic, but hopefully helpful whenever we get tempted to ‘casualise’ Buffett.

(phreak) #249

My point wasn’t about Buffett’s integrity or intelligence as much as it was about reducing a man’s intelligence to quotable quotes which can be used out of context, misinterpreted, misused etc. These quotes have to come with a corollary at the very least.

For eg.

  1. My favourite holding period is forever. If the stock in question is a stalwart like Coca Cola.
  2. When I buy a stock, I don’t care whether they close the stock market tomorrow. Unless its a special situation where its an asset play or a cyclical.

And so on…

(Abhishek Basumallick) #250

Buffett has very clearly said, and many times, that his holding period is forever only for certain types of businesses. The stock market closing is for those types of businesses. He also compares those investments with investing in private companies for which quotes are not available, e.g. Borsheims, or Nebraska Furniture Mart or See’s Candy etc.

(insanemaverick) #252

This is exactly why I feel it is dangerous to be a superficial follower of Mr. Buffet. I don’t pretend to be an expert on Mr. Buffet and find it amusing when people speak with such authority on one of the finest investors to have graced this planet. What we essentially forget when we talk about Mr. Buffet and his investments are that many of these business are owned outright by Berkshire Hathaway. When you own a particular business as opposed to being a minority shareholder, the entire equation changes as you have the means to make changes in the company to create value. 50 percent of his genius can be attributed to the fact that he is a great businessman as much as, if not more a great investor.
So, if you cut copy paste some of his finest thoughts in the Indian context and that too as a minority shareholder, you are essentially asking for trouble buddy. After all, didn’t a large part of his competitive advantage come from the float in his insurance business? I personally prefer other investors as compared to Mr. Buffet to learn from, because his life story and his perspective/genius is difficult to emulate for a person with below average intelligence like me. I am already 29, and I am yet to buy any business outright. The only business I own as a promoter is my own entrepreneurial venture. His shareholder(letters to partners of his investment firm) letters in 1950’s and 1960’s were the ones which I enjoyed reading the most, because that’s when he actually thought and invested like a minority shareholder and I could identify with his thought process.

Anyways, this thread is increasingly navigating to more of a doctoral thesis on Buffet and his quotes. My view is that for all of these great investors, the quotes and pearls of wisdom should be seen in the context of the economic environment and their personal business strategy. So, I guess it’s high time that we should bring focus back to the company that we should be discussing i.e. Bajaj Finance.

(Hitesh Patel) #253

Interesting discussion on Bajaj Finance with strong views on both sides.

I think the key to these situations is figure out when de rating/rerating of a company is likely to happen.

De Rating starts when the sector as a whole or the company in question starts experiencing headwinds. Does Bajaj Fin face headwinds or likely to face them? I think in the near to medium term of few quarters with consumption boom likely to remain strong/get stronger its not likely to face too much of headwinds. And with an agile smart management which has taken the company to where it is, all avenues for growth will be exploited fully.

For expensive well discovered stocks which have been perceived by markets to have a long run way for growth, valuations often sustain for longer than one expects especially if growth keeps coming in numbers. And sometimes even if growth slows down aka Page. We have to learn how markets have treated their favorite growth stocks over long periods of time and then think about our buy/hold/sell decisions.

For me as long as the company continues to perform with consistent growth numbers and good asset quality I am happy to remain invested unless I see huge amount of froth and scary valuations.


Q2 Presentation

(fabregas) #255

There was a statement made by the MD Rajeev Jain in the conference call. It was about the RBL Bank - Bajaj cobranded credit cards. Currently the cards in circulation are 100k. He said once the number crosses 1 million, that business would become disproportionately profitable. I did not understand this statement.

Most credit card users in India use their credit card as a means of payment rather than as a means to avail credit. So not sure why the business would become disproportionately profitable after the number of cards crosses 1 million. Can someone elaborate on this?


When we swipe our card for Rs 100, ~2% goes to the bank and this is called MDR (Merchant Discounting rate). The MDR for debit card transaction has been capped at 0.25% upto Rs 1000, 0.75% for transaction values upto Rs.2000 and at 1% for transaction values above Rs.2000. There us no CAP for credit card transactions. That is why there is 2.5% fuel surcharge levied when you use credit card and there is a 3.5% foreign transaction fee for non INR card transactions.

There are other ways bank earn fee and charges like:

  1. Annual Fee and joining Fee (Bajaj cards charge Rs 500 to Rs 3000/year)
  2. Reward points redemption fee
  3. Processing fee for various services like balance transfer, EMI conversion, etc. (Bajaj cards charge 2.5% + GST for cash advances, personal loans)
  4. Interest on EMI
  5. Interest on revolving limit
  6. MDR charged

(nil_71) #257

More importantly Operating Leverage. For the same infra, BAF will derive significant revenue.

(Deepak Venkatesh) #258

Hi there

Please find some photos of a very good but dated report on survey of credit card issuers in India. The survey was split into industry leaders and laggards (and the averages). This was done by McKinsey. Apologies as I do not have a pdf version and for the quality of photos (clicked 7 yrs ago!). If anyone wants all the slides I can send it in PMs.Why I am sharing this is because the fundamentals on how money is made by credit card issuers is still the same and I think Bajaj Finance cards are going to exemplify these data points/inferences.

See the equation for revenue for Credit Cards.

Net interest income

High Spends

Lowering Costs

I am guessing they are having the lowest acquisition costs plus the spends will be high and these cards are catering to drive asset adoption (emi) amongst its users. Its a confluence of all the good things for a credit card issuer :slight_smile:


disc: not invested

(fabregas) #259

Thank you @drgrudge and @nil_71. Your points make sense. About MDR, there are 2-3 entities which share the MDR. For online transactions it would be the payment gateway, the bank issuing the card and Visa/MasterCard/RuPay. For offline POS transactions, there would be the bank issuing POS terminal, Visa/Mastercard/RuPay and the bank issuing the card. I don’t think that would be a significant chunk of revenue. From the slides shared by @deevee you see that most of the income comes from interest and fee income. The interchange revenue per card is quite less (< 10% of total revenue).

@deevee Thanks for posting the slides. What are the units of the revenue graph on the first slide? The industry average revenue of 100 per card, is that per month or per year? Also it is Rs 100 or something else? Assuming it is Rs 100 per card per year, even for 1 million cards the total revenue comes to about 10 crore per year. Quite small in the larger scheme of things. Do you agree with my assessment?

(Jose) #260

I have seen so many good reviews abt this company but never felt confident abt it myself… But these days I see them lending quite aggressively esp consumer loans , personal loans and 2 wheeler loans.for the past few months 90% of the cibil reports that I took ended up having atleast one consumer loan.and they are having tie up with every shop and even offering a good payout to them.And the interest charged is pretty high too .excellent marketing. And they have a very good reach even in tier 3 cities and rural areas.but my concern is the asset quality issues that may come up,I don’t know much abt their lending principles… And also agree that the very high interest rates in the upward of 20 % even for 2 wheelers definitely seems to be well adjusted for the credit risk they take.can anyone give me an idea on their recovery policies and asset quality

Disc: not invested

(chets) #261

My cousin works for them. All I can share is that they have the best recovery figures and in near term there is no danger of NPA expanding.

(manivannan.g) #262

Ambit ruing the fact that they under estimated bajaj finance. This is what they’ve mentioned in “their past mistakes” report-July 2017. They gave a sell call in 2014, but it continuously proved them wrong :slight_smile:

Bajaj Finance: In a hard hitting initiation note (click here) we had pointed out tail risks to this business at a time when no one else was even thinking of them (and so far, rightly so!). We confess that we underestimated the power of their cutting edge analytical prowess and their ability to launch new products continuously and successfully despite competitive pressures on existing products.

(Mahendra243) #263

All…is it good time to add more given the fact that it has corrected from 2K and it is at 1760 odd…will the rising crude and govt may not honor fiscal deficit rumors going on and pushing the bond yields up… will it make BF cost of borrowing costs up? will they continue to deliver 30% growth going forward?

Disc:Have few hundreds @1300

(Jaclyn) #264

Insider buys during the last one year for reference.

(nil_71) #265

Yes- I also some of the transactions. People bought in November too. That means BFL2.0 is shaping welling

Infact, One strategy, they adopted to harness the Digital Lifestyle market is tying up with Regional Digital Franchisees eg Poorvika Mobile in South with co-branded cards