Yes blog is a good source of learning and I have read it a lot and learnt from it.Prof I think doesn’t invest in financials, I have seen many other investors/fund managers refraining from financials for similar reason, or at least capping sector weight to lets say 30%.
I made this ^ observation in Sep 2016. Good to know the EMI card franchise is doing extremely well for BFL.
This also explains why 74% of the loans come from existing customers. I am guessing a large chunk of these would be EMI card holders purchasing consumer durables. The growing EMI card franchise will also help BFL bring down the cost to income ratio, which is hovering around 40% for the past few quarters. Do you agree with me?
Trying out EMI card for myself
Eager to try out this product for myself, I decided to apply for an EMI card. Bajaj Finance takes online applications for an EMI card, and I have previously taken consumer durable loans from BFL. So it should have been an easier task. So I reached out to the customer care team and this is what I figured out:
- BFL has stopped online applications for the card.
- Even past customers can only get a card by taking a consumer durable loan at outlets like Croma, Reliance Digital, Ezone etc. (This was what the customer care team informed me)
- The EMI card comes with a fee of Rs. 412/-
per yearand a renewal fees of Rs. 117/- incase of card not utilized in the entire year.
As I don’t have any CD purchases lined up in the near future, I will have to wait for more time to try this product.
So along with repeat customers (which results in lower cost of customer acquisition and hence lower cost-to-income ratio),
the EMI card gives a recurring yearly fee based income to BFL. This fee based income will become significant as the EMI card franchise grows (currently 15 million as revealed by the MD during the AGM)
IMPORTANT EDIT: I may have been mistaken about the recurring fee based income. The EMI card has a one time payment of Rs 412. You only need to pay Rs 117 if the card has not been used in the past 1 year. My bad, sorry I got over excited
Does anyone else have an EMI card. Can you post your experience (positive/negative) using this card?
@sincyvarghese: I could not agree more with you - scarcity of high quality companies driving the price of a few up. One thing is moderate long term returns and the other is, we’ll be in a lot of pain if something blows up prematurely. So, 20% CAGR for Bajaj Finance for 10 years and an exit multiple of half its current valuation would fetch us roughly 10% CAGR with ~4 lakhs market cap. Feels like insufficient premium for taking the risk. But, the market seems to accept it, for now.
[quote=“anuj4282, post:357, topic:267, full:true”]
BFL gets 73% of loans frm existing customers. This is infact some kind of concern for me. Obviously the same customer will not keep borrowing quarter after quarter. So real growth should come from new customers and not existing. Views invited [/quote]
In this case, growth is not my first concern. If the same customer keeps borrowing, there is a risk of over leverage and default. However, I hope the management would be aware of this and would know what they are doing. Fingers crossed and closely watching their growth, RoE and NPAs.
I had the discussion with an employee in risk management department in Bajaj Finance. As per him, it is a strategic decision.They first give a CD loan to a customer and check the credibility for repaying the loan on time and when he does so then they give a bigger/other type of loans to the same customer.
Why are you assuming 20% CAGR when the company is growing at 40-50%… Why aren’t you starting with current growth and then slowly reducing it?
My first loan from Bajaj Finance was for a refrigerator. After few years, it was for a washing machine. Then, another few years, air conditioner. Now, I have a home loan. Not all at one go, but after a gap of few years. I’ll need similar loans for replacing existing devices after few years. That’s how it works
You are spot. Replacement demand will also emerge gradually after 7-8 years
In financial industry , the growth which come from existing better cibil customer is far better quality and chance of turning in bad asset is relatively less than loan given to new customer.
competition inching up
Consumer loan segment will get very competitive. Going forward it would not be easy for the likes of Bajaj Finance to see the growth what they have done in last decade. Google, Amazon, PayTM, Whatsapp etc will go for the kill even with burning cash which Bajaj Finance will find it hard to do.
One can argue that the market size is huge and all will get their pie. But, even telecom sector is huge and what Jio has done in 2 years with aggressive pricing is something we can learn from.
Disc - Sold 70% of my holdings after holding for last 6 years.
People who are discounting BFIN, have to understand one thing, this business is not only lending, Market will reward those who have a great collection system. Anybody can ‘Aspire’ to be a great lender but market will reward only great Collector.
In case you have doubt , read the recent history of near death situation of MOSL’s HFC business. It is not always good to ‘Aspire’ to be a great lender
Kindly explain your point of view a bit more in detail to understand.It appears you still rate Bajaj finance as good but your example of motilal oswal is confusing at least me as to what u want to communicate about Bajaj finance.thanks
Lending business is all about how efficient is your collection system, how good is your risk management system. BFIN is super efficient on this.
India is a capital starved country. It does not matter whether Amazon, Google or say tomorrow Flipkart starts lending.
Market will reward only those NBFCs who can control NPAs. That is where BFIN has excelled. It is not easy. For that you need to listen at least last 8 qtrs of concall of BFIN to understand, what is the trick.
BFIN took 4 years to stabilize its Digital Lending business and you need a great culture and leadership to formalize it …it will be a long story… What is more important, it is not easy.
MOSL also started its HFC business with great fan fare, hired a guy from DHFL who had 25 years of experience but failed badly with high NPA. Please google one interview given to ETNOW by MOSL Duo ( Mr. Ramdeo and Mr. Oswal) . You will understand why Mkt values BFIN, Gruh so much…
It needs time to build a business in India where market is so unorganized and people’s record in repaying unsecured loan is not that great. People got mislead frequently by vested interest and prodded , Not to pay loan ( eg MFI situation)
Yes BFIN is overvalued, it will correct. It may correct another 30 %–40% and that will be good opportunity to buy. Think Long term.
While it is true that competition is intensifying in the CD space BFin is expanding in other areas i.e. while the competitors like HDB are invading BFin’s territory BFin is invading its competitors territory (Mortgages). BFin also has the record of successfully defending its turf in the face of competition from the likes of Capital First. My understanding after reading the article is Amazon is trying to tap the market which is not served by the likes of BFin and other credit card issuers i.e. people who either are not eligible to get a credit card or unwilling to get one. My sense is that Amazon will be quite happy to let someone use their Credit or EMI Card if they have one after all why take the risk by providing them credit when you can avoid it, lending is not their core competence and they have a large enough market to tap with Market place.
Many thanks.Understood your point and appreciate your detailed response
These factors are quite complex and need to be observed over a longer duration.
What may happen is many of these try and fail or try and move to selected sub-segments- many have already. Lending is a business of risk, Bajaj understands and manages risk quite well… New comers are probably like to come, try fail/re-invent and then move back to their core competency. Last year even Capital First was ‘next Bajaj Finance’ - where is it today? Key moat here is culture, first-mover in new segments and risk management, these things are easier to say tough to build.
What I would watch for is quarterly results and management commentary, till you see any clues in there, I would say all the best and Happy Speculating!!
Just to corroborate …that building business is not easy…please read this wonderful article and related mental model…
Dont agree with your reference to Capital First as to where is it today. Its progressing really well. Please go through last 4 qtr results to verify this. Recent price action is due to merger with IDFC bank and not really about CapF not doing well. Infact the pie is huge, and one Capf or one Bajaj Finance are not eating into each other. They both are growing well. Though, I personally believe Bajaj Finance is a great franchise and has a long runway ahead for growth.
Imvested in CapF and looking to add Bajaj Finance.
Just remember this line always in India. As I mentioned yesterday and mentioned in this article also
" A loan was never a problem in India; getting the money back is "