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Bajaj Finance Limited

All these qip and promotors buy was prior to melt down

Article on Bajaj finance in ET :slight_smile:

some excerpts -
From a base of 25 million currently, the company aims to reach 75 million customers over the next five years. “The company already has a database of 30 million people, who are mass affluent, but not yet customers of the company. The management would like to tap at least half of them. A tieup with RBL Bank is showing strong traction and it has already issued 0.25 million cards. It targets to end CY18 with 1 million cards,” Motilal Oswal said.

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Q3FY18 Concall Highlights (source:capital market):

  • The company has recorded strong 35% growth its asset under management, while net interest income increased at faster pace of 38% in the quarter ended December 2017. The company expects its AUM size to increase to Rs 80000-83000 crore by end March 2018.
  • The return on asset and return on equity continued to be at record high level in the quarter ended December 2017. With the current run-rate, the company expects return on assets at 4% for FY2018. The company expects to continue to record return on equity of above 20% for the 9th straight year in FY2018.
  • The capital adequacy ratio of the company was strong at 25% end December 2017.
  • The company has managed its asset liability well and in the event of interest rates hardening, the company expects to be well placed to manage its impact. The size of deposits book of the company stood at 11% of the overall borrowings.
  • The Opex to NII ratio stood at 40% in Q3FY2018, while the company expects its Opex to NIM ratio to marginally rise in Q4FY2018. However, the company expects to contain it at 39 to 40% in FY2019.
  • Management of costs is expected to mitigate margin compression. The company has invested deeply over the last 18 months and is well invested in talent and technology to drive growth and operating leverage in medium term, while delivering better Opex to NII.
  • Bajaj Housing Finance (BHFL), a 100% subsidiary of Bajaj Finance, which started its operations in July 2017 has become fully operational in the current quarter. Its AUM stood at Rs 1586 crore end December 2017. The company is moving to separate Bajaj Housing Finance to run its mortgage business which accounts for Rs 21109 crore of the overall AUM end December 2017.
  • The company plan to book all incremental mortgage assets in Bajaj Housing Finance from April 2018, while the existing mortgage book in the Bajaj finance company will continue to run down. New leadership team from within Bajaj Finance has been identified for Bajaj Housing Finance.
  • The company has approved capital infusion of Rs 1200 crore in housing finance subsidiary, which raises networth to Rs 1550 crore.
  • As per the company, the mortgage and payments business would be key drivers of growth in the next few years. Expect these businesses to grow faster than Bajaj Finance growth rates over the next few years.
  • As per the company, the size of mortgage and housing finance business would expand to Rs 60000 to 70000 crore in next 4 to 5 years.
  • The mortgage book of the housing finance company is expected to touch Rs 16000 to 18000 crore by end March 2019.
  • The asset quality of the company is at its record best in the current fiscal, except some pressures in self employed mortgages.
  • The company has substantially expanded its distribution network from 400 locations end March 2015, to 650 locations end March 2016 and 950 locations end March 2017 and company expects to expand to 1200 locations by March 2018. The company has substantially expanded the point of sales from 16000 about 3 years ago to more than 53500 point of sales end December 2017. The company proposes to continue geographic expansion at 15-20% annual growth rate.
  • The company has repossessed 13 properties in the quarter ended December 2017, relating to accounts with the principal outstanding of Rs 30 crore.
  • The company is witnessing strong growth in the issuance of co-branded credit cards with RBL Bank to 2.5 lakh in the first nine months of operation, while the company expects to touch 1 million cards base by March 2019.
  • The company expects to raise its customer base from existing 25 million to 75 million in next 5 years.

They talk about REMI business. Any idea what does it mean?

I will hazard a guess, retail emi.

@basumallick and others who dialled in to the conference call - Did the management comment on the MobiKwik acquisition? Rajeev Jain had mentioned in the previous call that the CD loan approval process which takes 20-30 mins (If I remember correctly) will take hardly 1-2 minutes once Bajaj Finance integrates with the MobiKwik wallet. Disbursals, EMI payments etc will happen via the wallet.

Also I observed that Bajaj Finance EMI card option is not available on Amazon/Flipkart anymore. Did the management comment on that?

While I have not attended the call, I went through the transcript which is available on their website.

By May-June, the integration of BFL with the MobiKwik app will happen. At that time, the wallet, EMI card and credit card will have integration through a single app.

In next two-three years time he wants the entire card franchisee to be on the MobiKwik with their wallet.

No comments were offered about the CD approval process or its improvement.

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No cost EMI from Bajaj Fin is available on both Amazon and Flipkart…on selective products…unlike credit card option which is available almost on all products.


How can Bajaj finance makes money if it’s a no cost emi cards? Can’t understand the reason? Maybe am I missing something here

It takes some amount from Retailer and some amount from Manufacturer and provides it free to customer.

EMI (Existing Member Identification and NOT Equated Monthly Instalment) cards of Bajaj Finance has an initial charge and an annual charge. While the one time is charge is mostly charged to the customer at the very first time it is issued, the annual charge can be waived if the got used the card during the year. That should give you an indication of its significance. That is, if you have not used it, you are dud customer so Bajaj recovers some cost from you.

This card is not a credit card but a pre-approved loan limit by Bajaj Finance considering your credit worthiness. So there is a limit beyond which you cannot use it.

A particular online or offline store offers you a zero cost EMI (equated monthly installment) the store automatically taps into Bajaj’s pre-approved customer which also facilitates a customer to consume a high value item by paying in installments. So the store and also the manufacturer bear the interest burden. This helps them move the product rather leave it lying on store, which is money tied-up as working capital. The customer, lender, the vendor, the manufacturer all benefit through this sale transaction. And also the Govt by collecting GST.

Bajaj may pay to the vendor not the full amount, but less interest cost while collecting full amount from the customer.

Disc: I am not a customer of Bajaj Finance, but came to know of these details through various articles.


I have seen Bajaj Finance getting aggressive on home loans. They are offering loans at 8.35%, considering their cost of borrowing is 7% the spread is only 1.35% vs the BFL’s average spread of close to 10%. So what could be the reason for them to enter this segment

I am seeing Bajaj Finance employees taking home loans from Citi/Kotak et all and not from Bajaj Finance. Surprising.

Apologies for my lack of finance knowledge, Just asking out of curiosity.
Can someone please explain why NBFC are preferred over full service Bank for Loans ?

  • Banks have access to low rate CASA funds
  • can collect funds at lower rate via FDs than NBFC
  • will in general have better distribution channel via Bank branches
  • if required can avail funds at relatively lower rate from RBI

Wouldn’t Bank have relatively better margins than NBFC and hence, can offer better loan rates ? If NBFC tries to compete with Banks, then it has to adjust with reduced margins ?

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In simple terms, some of the well managed NBFCs have lower NPAs, stronger risk management practices in place and better growth vectors. They are not bossed over by corrupt politicians (may be one of the many reasons for current PSBs state of affairs in India). While PSBs have all the above listed structural advantages, they are never allowed to leverage upon them in India due to various populist policies (like loan waivers, priority sector lending etc).
To sum up, to have higher return on capital, firstly one should be sure about return “of” capital. I am hardly convinced about lending practices of major PSBs in India.

Disc: invested in Bajaj Finance. My views are biased. Pls do your own due diligence.


Bajaj Holdings which have 30-40% stakes in Bajaj Auto and Bajaj Finserv is trading at lower valuation compared to these two companies.Can someone help me understand this gap?

The reason is holding company discount.

Basically, a holding company is a company made to invest in other businesses and act a vehicle to raise money but without losing any control over said businesses. They are not engaged in any business activity. Their only income is dividend income and this cash is used for further investments. There is no return to shareholders (Low dividend yield). Even when they are valued at say 30% of their net worth, promoters do little to enhance value e.g. Buybacks.

Holding companies always trade at a discount which can have a wide range 20-80%

Banks also have to adhere to CRR, SLR and priority sector lending norms. To simplify lets see what bank and NBFC can do with 100 Rupees deposit it takes. I have given just rough figures and not exact SLR, CRR %.

Bank: CRR (4), SLR (20). Loans (76). Out of loans of Rs. 76, 40% that is 30.4 has to be priority sector loan. Usually yielding low interest.Rs. 45.6 of loan can be given to anything bank wishes.

NBFC: Can give out all 100 Rs. as loan.

Given all these restrictions on banks, the advantage of low cost deposits does not help margins compared to NBFC in many cases.


Being an investment banker I can say that NBFC’s can offer way way better terms and extremely fast turnaround times (week or max two three weeks) against banks (months) for promoters. Structuring the principal and interest payments to match cash flows, moratorium exceeding what banks offer, sale and lease back of machinery, deferring of both interest and principal, promoter funding, acquisition finace etc are just a few things a promoter can demand from an NBFC. Banks especially psu 70% of the system will never ever be able to offer such terms

Also Pvt banks today are rejecting credit proposals of companies having good ratings because they are interested in disbursing in retail segment or to corporates where they earn a min spread of 4-5% over cost of funds. After Niravgate NBFCS and pvt banks are going to make money like there’s no tomorrow

An ideal allocation to the BFSI sector would be a mix of defensive Pvt banks and aggressive NBFCs