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Bajaj Finance Limited

It is being said by some that grant of banking license will raise share prices. Maybe. but the earnings will not rise immediately. AXIS band and ICICI are quoting at a trailing PE of abt 12-13, I cannot expect Bajaj finance to quote at a higher PE.

i feel it will be a negative in the short term. Granting of banking license will meanthat Bajaj fin will have to comply with the CRR requirement and will have park 4 % of funds with RBI ( I believe CRR is presently 4 %). Also the company will have to incur capex in setting up of new branches and other general marketing expenses.

The advantage of owning a bank is low cost of funds. However, opening a branch does not mean customers will rush to open an account. Also the company will have to compete with well established private banks - hdfc , icici, axis, yes, kotak, indus ind and also with other new banks.

As per RBI guideline , one out of every 4 branch has to be in rural areas which will affect the rate of growth as well.

Over longer term it should be a positive provided the company is able to handle the new business well. I consider it as a negative for short - medium term.

Q1/Fy 13-14 Results out…

Total Income up 32.6% to 932.43 Cr from 703.02 Cr.
Finan Costs up 25.7% to 331.44 Cr from 263.62 Cr.
Net Int Inc up 36.8% to 600.99 Cr from 439.4 Cr.

Op Expenses up 34.4% to 270.25 Cr from 201.04 Cr.
Pre-Provision Profit up 38.8% to 330.74 Cr from 238.36 Cr.

Loan Loss provision doubled to 63.88 Cr from 32.02 Cr.
Which led to moderation in growth of Net Profits which still went up 26.7% to 175.74 Cr from 138.69 Cr.

Note: Company made incremental Provision of 18 Cr due to regulatory changes and not because of Asset Quality. (Net NPA up to 0.25% v/s 0.19% Q-o-Q)

EPS 35.07 v/s 33.20

BFL is at mouth watering levels now.All the pros & cons are listed above & I don’t see it falling much below 1250-1200.Its just the sentiment that’s so weak now.But I don’t know how often one gets companies of such pedigree at less 10 times TTM earnings.Time to start nibbling.

Questions

:

1)Would anyone share how the recent RBI steps will affect NBFCs like Bajaj Finance?

2)Are the steps bad for BFL’s NPAs(lower loan giving capability,lower loan growth,etc.)?

3)What is the reason for such beating of the stock price,other than poor sentiment?

Conf Call Highlights by Capital Market:

  • Company has continued to post strong performance. The loan growth has maintained healthy momentum despite liquidity tightening.
  • Company has continued to maintain a cautious view on its commercial business in Q2FY2014 also. Two-Wheeler financing de-grew 8% in Q2 due to slowdown in Two-Wheelers industry. Market share of 2W continued to be around 30% of Bajaj Auto’s domestic sales.
  • Three-wheelers business continues to grow in a healthy manner, which is currently operating in 15 states covering 123 key dealers of Bajaj Auto.
  • Company’s market share of Bajaj Auto’s 3W domestic sales continued to grow and currently held at 21%, which is working as a solid hedge to auto financing business strategy.
  • Consumer durable & lifestyle finance business continued its solid run in Q2 as well and delivered a YoY growth of 27%.
  • However, company witnessed that the consumer demand on an incremental basis is slowing steadily across discretionary (consumer durable, lifestyle & personal loans) and nondiscretionary (home loans).
  • Company sees encouraging early indicators in rural lending business, which are tracking ahead of its internal estimates on most parameters.
  • The company is launching seven new hub locations and 28 spoke locations in second half of the year.
  • SME businesses (Mortgages, Business loans & Loans against securities) continued to grow in a healthy manner on account of the company’s sharp focus on customer segmentation.
  • Company estimates that it is now among the top 03-04 new loan originators in loans against property and business loans in India. The company is investing to grow its âDirect to Customer’ channel in the SME business.
  • Interest cost for the company continues to remain significantly lower amongst NBFC peers. Borrowings are balanced between Long-term & Short-term to maintain healthy ALM.
  • During Q2 Money markets were completely frozen, while it remained largely unaffected during this period owing to its conservative ALM strategy.
  • Company saw a marginal increase in Q2FY14 interest cost.
  • Company has completed assignment of Rs 210 crores of its mortgage business during Q2FY2014 as part of its ALM & treasury diversification strategy.
  • Gross and Net NPA stood at 1.14% and 0.26%, respectively at end September 2013. Mortgage, construction equipment finance & two-wheelers business contributed to the Net NPA.
  • Credit quality across products remained steady in Q2FY14, except CE, while company expects asset quality to improve on good monsoon.
  • Distribution fee based products viz. life & general insurance, wealth management and CRISIL Ratings saw good traction across businesses and continued to remain strong.
  • Other income of the company was boosted by surplus liquidity providing additional interest income of Rs 27 crore, but this gain was nearly offset by higher interest expenses of Rs 25 crore.
  • Borrowing of the bank stood at Rs 15800 crore at end September 2013.
  • Company expects the loan growth in the range of 20-24% for Q3FY2014.
  • Company has hike interest rates by 25-30 bps for floating rate products.
  • Company has applied with RBI for launching credit card business and expects to implement the same 6-9 months after license issuance.
  • The headcount of the company stood at 3300 employees at end September 2013.
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Conference Call by Capital Mkt
Rajeev Jain - CEO of the company addressed the call on 15th Jan

Highlights:

  • Company demonstrated a strong volume momentum, strong credit performance across Consumer and SME product lines.
  • Company has provided Rs 21 crore for accelerated provision, leading to higher loan loss provisions in the quarter ended December 2013.
  • Company has almost completed the process of more than two-years of accelerated provision for shifting of NPA recognition from 180 days past dues to 90 days past dues. Currently, about 95% of the book has switched to 90 days NPA recognition norms, while rest is expected to be completed over next two quarters.
  • Company has maintained the cost of funds steady during Q2 as well as Q3 of FY2014, despite challenging interest rate environment.
  • Company maintained a healthy growth momentum, while continued to maintain a cautious view on its commercial business. Two Wheeler financing de-grew 15%, while its penetration of Bajaj Auto's domestic 2W sales remained at 30%.
  • Three wheeler business, operating in 16 states covering 138 key dealers of Bajaj Auto, continued to grow in a healthy manner. Market share of Bajaj Auto's 3W domestic sales continued to grow and stood at 22% at end December 2013.
  • Consumer durable & Life style finance business continued its solid run in Q3 as well and delivered a YoY growth of 25%.
  • SME businesses (Mortgages, Business loans & Loans against securities) continued to grow in a robust manner with healthy credit performance on account of sharp focus on customer segmentation. The company is investing to grow its direct to customer channel in the SME business.
  • Company estimates that it is amongst the top 4 unsecured originators in FY14 and its market share of mortgage market is estimated to be at 3%.
  • Commercial Infra business continued to de-grow due to sectoral stress. However, company continued to grow its auto component finance business.
  • Rural Lending business is tracking ahead of plan. On January 01, company launched 2nd phase of 7 new branches with 28 spokes taking total presence to 67 towns and villages in Rural Maharashtra.
  • Borrowings of the company stood at Rs 17900 crore, of which bank borrowing accounted for 60% and 40% comprised of money market instruments. Borrowing mix between banks & money markets has shifted from 55:45 to 60:40 due to weak money markets.
  • In order to tide over situations similar to the July liquidity crisis, company has created Liquidity Desk framework where certain percentage of the borrowing book will be kept as liquid investments.
  • Company completed assignment of Rs 189 crore of its mortgage business as part of its ALM & treasury diversification strategy during Q3FY2014.
  • Gross and Net NPA remained stable at 1.15% and 0.23%, respectively. The company continued to take proactive policy actions to take out bottom 7-10% of potential âhigh risk' business. Collection efficiency improved with increased contribution of digital collections.
  • Company launched a new fee product in Q3 FY14 viz. Consumer Financial Fitness Report for its retail customers. It can be purchased by existing customers in a digital mode through our internet portal platform.
  • Company has neutral to negative outlook for the quarter ending March 2014. Meanwhile, company reiterated the target to achieve the AUM of Rs 24000 crore by end March 2014.
  • Company is the first non-bank to tie-up with UIDAI to access Aadhaar Card/ eKYC customer database.
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Manish/Vinay/Sagar/Manish this is a very good discussion, looking at Bajaj Fin now, had this question in my mind. Would it be better to invest in Bajaj Finance or Bajaj Finserv?

Bajaj Finserv has the insurance business which is probably the only profit making entity among private insurers and has the potential of creating enormous float. Hypothetically, they would lend it out via their finance arm, wouldn’t they? Would you know how this float plays out to Bajaj Finserve’s and BAFIN’s advantage?

How does it come into the CAR calculations?

Bajaj Finserv owns only 25% in the insurance entity. So from insurance perspective it is a holding entity at best. They have written options to Allianz to purchase upto 75% equity in the insurance arm at a nominal price as and when Indian govt allows 75% FDI in insurance.

@Gyan The latest Jan14 Q3 presentation slide attached, per that slide Bajaj Finserv’s holding is as below

Bajaj Finance Ltd - 62%

Bajaj Allianz Life Insurance - 74%

Bajaj Allianz General Insurance - 74%

The footnote has a mention about converting BAFIN to a bank as well. Do you think they are going to cash in 50% of 2nd and 3rd entities? Would it be right to think that if the news is true, then a “Finserve” investor will be holding 62% of BAJFIN with loads of cash for a cheaper valuation?

I don’t understand anything about investing in holding companies as opposed to primarily investing in the company. Would appreciate if seniors can guide me here.


Bajaj finance has posted good results. The sme segment has performed very well. The company has grown by about 30 %, NP by 22 % due to higher provisioning. It is still reasonable on p/ bv and pe basis. I think the diversified portfolio is helping.

Regd Bajaj Finserv : the life ins segment is not growing. Only the general insurance business is doing well. There is too much of competetion in insurance business. It is unlikely that Bajaj will sell its stake in insurance business but even if it does it’s not going to distribute the money to shareholders. I feel Bajaj finance is a better choice for long term. It is in the business of lending which I believe will do well going forward.

That is good news Manish, would you recommend accumulating at this price?

About Bajaj Finserv -

Last year the FDI cap was raised to 50 but Bajaj did not sell stake to Allianz to reach that limit yet. So I'd agree with Manish that its unlikely they will go selling upto 75 in any near future.

The Indian insurance market is the under penetrated across the whole world. The present economic conditions are are forcing people to prefer assets of physical nature than financial instruments. The excerpt is from a 2012 IRDA press release.

The Insurance Regulatory and Development Authority (IRDA) has informed that the total insurance penetration, which is the ratio of insurance premium as a percentage of GDP has increased from 2.32 in 2000-01 to 5.10 in 2010-11. The life insurance penetration has decreased from 4.60 in 2009-10 to 4.40 in 2010-11, whereas the non-life insurance penetration has increased from 0.60 in 2009-10 to 0.71 in 2010-11.

Here is an IRDA comparison of insurance density per country. India stands just above Srilanka and 4 times behind Brasil or Russia. Wouldn't that make it a case to invest in Finserv (which has 50% of finance)

INTERNATIONAL COMPARISON OF INSURANCE DENSITY*
Country 2007 2006 2005 2004 2003 2002 2001
Total Life Non-Life Total Life Non-Life Total Life Non-Life Total Life Non-Life Total Life Non-Life Total Life Non-Life Total Life Non-Life
Developed Countries
United States 4086.5 1922.0 2164.4 3923.7 1789.5 2134.2 3875.2 1753.2 2122.0 3755.1 1692.5 2062.6 3637.7 1657.5 1980.2 3461.6 1662.6 1799.0 3266.0 1602.0 1664.0
United Kingdom 7113.7 5730.5 1383.2 6466.7 5139.6 1327.1 4599.0 3287.1 1311.9 4508.4 3190.4 1318.0 4058.5 2617.1 1441.4 3879.1 2679.4 1199.7 3393.8 2567.9 825.9
Switzerland 5740.7 3159.1 2581.7 5561.9 3111.8 2450.1 5558.4 3078.1 2480.3 5716.4 3275.1 2441.3 5660.3 3431.8 2228.5 4922.4 3099.7 1822.7 4342.8 2715.7 1627.1
France 4147.6 2928.3 1219.3 4075.4 2922.5 1152.9 3568.5 2474.6 1093.9 3207.9 2150.2 1057.7 2698.3 1767.9 930.4 2064.2 1349.5 714.7 1898.8 1268.2 630.6
Germany 2662.1 1234.1 1427.9 2436.8 1136.1 1300.7 2310.5 1042.1 1268.4 2286.6 1021.3 1265.3 2051.2 930.4 1120.8 1627.7 736.7 891.0 1484.2 674.3 809.9
South Korea 2384.0 1656.6 727.3 2071.3 1480.0 591.2 1706.1 1210.6 495.5 1419.3 1006.8 412.5 1243.0 873.6 369.4 1159.8 821.9 337.9 1060.1 763.4 296.7
Japan 3319.9 2583.9 736.0 3589.6 2829.3 760.4 3746.7 2956.3 790.4 3874.8 3044.0 830.8 3770.9 3002.9 768.0 3498.6 2783.9 714.7 3507.5 2806.4 701.1
Developing Countries
Brazil 202.2 95.3 106.9 160.9 72.5 88.4 128.9 56.8 72.1 101.1 45.9 55.2 82.6 35.8 46.8 72.2 27.2 45.0 64.0 10.8 53.2
Russia 209.4 6.1 203.3 150.9 4.0 146.9 122.8 6.3 116.5 114.4 24.8 89.6 98.2 33.9 64.3 66.6 23.1 43.5 65.8 33.2 32.6
Taiwan 2628.0 2165.7 462.3 2250.2 1800.0 450.3 2145.5 1699.1 446.4 1909.0 1494.6 414.4 1433.3 1050.1 383.2 1279.2 925.1 354.1 1088.5 760.9 327.6
Hong Kong 3373.2 3031.9 341.3 2787.6 2456.0 331.6 2544.9 2213.2 331.7 2217.2 1884.3 332.9 1832.6 1483.9 348.7 1583.0 1237.9 345.1 1545.2 1249.7 295.5
Malaysia 332.1 221.5 110.6 292.2 189.2 103.0 283.3 188.0 95.3 256.5 167.3 89.2 227.0 139.8 87.2 198.0 118.7 79.3 198.3 129.5 68.8
Singapore 2776.0 2244.7 531.2 1957.7 1616.5 341.2 1983.4 1591.4 392.0 1849.3 1483.9 365.4 1620.5 1300.2 320.3 1030.7 730.1 300.6 959.0 713.2 245.8
Thailand 129.7 70.8 58.9 110.1 60.0 50.0 99.0 54.6 44.4 92.1 50.8 41.3 79.6 52.0 27.6 65.2 42.1 23.1 53.9 34.1 19.8
India 46.6 40.4 6.2 38.4 33.2 5.2 22.7 18.3 4.4 19.7 15.7 4.0 16.4 12.9 3.5 14.7 11.7 3.0 11.5 9.1 2.4
PR China 69.9 44.2 25.5 53.5 34.1 19.4 46.3 30.5 15.8 40.2 27.3 12.9 36.3 25.1 11.2 28.7 19.2 9.5 20.0 12.2 7.8
Sri Lanka 24.9 10.2 14.7 21.3 8.5 12.8 16.3 6.9 9.4 14.1 6.2 7.9 12.5 5.3 7.2 10.6 4.5 6.1 9.7 4.3 5.4
Pakistan 6.5 2.6 3.9 5.9 2.3 3.6 4.6 1.9 2.8 3.7 1.5 2.2 2.9 1.1 1.8 2.7 1.0 1.7 2.7 1.2 1.5
Bangladesh 2.9 1.9 0.9 2.6 1.8 0.8 2.5 1.7 0.8 2.3 1.5 0.8 2.1 1.4 0.7 1.6 1.0 0.6 1.6 1.0 0.6
South Africa 878.5 719.0 159.5 855.8 695.6 160.2 714.6 558.3 156.2 686.5 545.5 141.0 583.9 476.5 107.4 425.3 360.5 64.8 446.3 377.2 69.1
Australia 3000.2 1674.1 1326.1 2580.8 1389.0 1191.9 2569.9 1366.7 1203.2 2471.4 1285.1 1186.3 2041.4 1129.3 912.1 1705.9 1010.4 695.5 1668.3 1040.3 628.0
World 607.7 358.1 249.6 554.8 330.6 224.2 518.5 299.5 219.0 511.5 291.5 220.0 469.6 267.1 202.5 422.9 247.3 175.6 393.3 235.0 158.3
Source: Swiss Re, Sigma various volumes
* Insurance density is measured as ratio of premium (in US Dollar) to total population

Hi binu

IMHO I feel Bajaj fin can be accumulated at this price. The stock has been volatile in the past so I feel it’s better to buy in instalments as per your conviction. A company with reputable mgmt. growing at 25 % available at less than 12 trailing PE is a good bet. Also in financing of lifestyle products the competition from organised players is limited. The major competitor is citi. Also it has got access to finance bajaj auto 2 and 3 wheelers. It has good presence in rural areas.

I am not an expert on insurance sector or for that matter on banking or finance. The seniors can guide us better. I will express my opinion.

I am not saying bajaj finserv is not a good stock. But the competetion is HUGE!! almost all the banks and financial institutions are selling insurance. They have got easier access to their account holders. Players like Lic sbi Hdfc icici have better brand value. Even players like exide have entered insurance business . Many people prefer govt institutions for insurance. Where is the moat for finserv. A customer will go to policy bazaar.com and buy the cheapest insurance available. Whereas in finance a small player will not be able to offer loan at cheaper rate as his cost of funds will be higher. The moat can come from the database credit history of clients and by cross selling.

Bajaj finance has a good track record whereas same is not impressive for finserv. Most of the growth in profits for finserv is due to bajaj finance. The rationale for investment in finserv is based on expectation of future performance.

Rajeev Jain - CEO of the company addressed the call:

Highlights by Capital Mkt:

  • The company witnessed stable quarter in Q4FY2014, while one time gain on account of revaluation of deferred tax asset helped to maintain the tax rate lower in Q4FY2014. The AUM growth was strong, while disbursement remained robust in FY2014.
  • Large increase in loan loss provision was because of accelerated provision for shifting of NPA recognition from 180 days past dues to 90 days past dues. In the absence of accelerated provisions, the net profit would have increased 29% in FY2014.
  • Currently, about 96-97% of the book has switched to 90 days NPA recognition norms, while only infrastructure book is only pending.
  • One account in the mid-sized infrastructure segment slipped to NPA category in Q4FY2014, which is backed by hard collaterals. Company expects to fully recover the account in next 4-5 months.
  • With more diversification of balance sheet, the company expects RoA to stabilize at 3% in the medium term of 18-24 months.
  • The healthy growth of disbursements in the consumer durable segment was supported by incremental contribution from digital products.
  • The lifestyle segment garnered more than 1 lakh customers in FY2014, the company is targeting the customer base of 2 lakh for FY2015, while expects the business to contribute meaningfully to the bottomlines in next three years.
  • Company estimates the market share in the mortgage and loan against property at 3%
  • Rural lending clocked the disbursement of Rs 50 crore in Q4FY2014. During FY2015, company plans to add 21 location and 100 spokes in the rural lending business, while expects the business to be profitable in FY2016.
  • The commercial vehicle and construction equipment business remained slower in FY2014.
  • Borrowings of the company stood at Rs 19750 crore at end March 2014. The bank, debt and retail deposit mix stood at 58:41:01 at end March 2014. Company proposes to raise the share of retail deposits to 12-15% in the medium term.
  • Fee based income remain under strong focus of the company. The company proposes to invest in wealth management business in FY2015.
  • Company expects the expense ratio to remain at current level with continued investments in businesses.
  • Company expects the AUM growth of above 20% in FY2015.Company remains interested in becoming a bank.

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FROM BAJAJ FIN AR FY 14

In FY2014, BFLâs total income was up 31% to 4,073crore .

Profit after tax (PAT) was up 22% to H 719 crore

lBFLâs assets under management rose by 37% to 24,061cr

Capital adequacy as on 31 March 2014 was 19.14%,

BFLâs net NPAs were at 0.28%of total assets.

SME lending grew by 52% to 9,907 crore.

consumer lending. Loan deployment for consumer lending in FY2014 was up 36% to 13,360 crore.

Commercial lending, however, deâgrew by 11% due to your Companyâs cautious stance on the precarious state of Indiaâs infrastructure sector

The year also saw BFLâs entry into wealth management as well through a fixed deposit programme for high net worth clients. The response was excellent, with your Company raising over 200 crore from more than 7,300 customers in less than 90 days of its launch.

BFL launching its rural lending business in FY2014. This focuses on relatively better off rural customers by meeting their borrowing and wealth needs through consumer durable loans, gold loans, refinance loans and fixed deposits. Operating in 68 upâ country towns and villages, this business disbursed 77 crore to over 22,000 customers in the course of the year.

It continued to leverage its Direct Cash Collection model in rural and semi-urban markets where the customers with no banking habits can repay the EMIs by cash. A pilot is currently underway to roll out a similar model in some urban markets of the country as well.

It was also the second largest three-wheeler financier in the country. Here too, the Company adopted the Direct Cash Collection model at 138 dealer and 78 sub-dealer locations across the country.

It helped finance 15% of all consumer electronics sold in the year.

I believe the story is still intact â itâs a long term bet, I expect consistent growth of abt 25 % , diversified portfolio and a good mgmt should ensure less risk / downside for the business.

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Rajeev Jain - CEO of the company addressed the call:

Highlights by Capital Mkt:

  • Company witnessed a good quarter with robust volume momentum & strong credit performance in Consumer & SME businesses despite a weak demand environment.The company continued to readjust its portfolio mix to reduce the beta in its business model in Q1FY2015.
  • Consumer durable finance business continued its solid run. Digital product, Geo expansion and higher penetration of Air Conditioner sales has helped consumer finance growth trajectory in Q1. Digital products contribution for the quarter was 10% of Consumer durable financing business.
  • Lifestyle financing business witnessed robust 216% growth. The company is continuously identifying new product categories in the business to expand its product offering to support its strategic path to grow Lifestyle finance into a large business.Cross-sell momentum across businesses delivered exceptional performance.Salaried personal loans business continued to grow well with healthy credit performance.
  • Rural Lending business is tracking ahead of plan. It disbursed Rs 50 crore during the quarter. The business also launched 14 new branches & 52 spokes in central Maharashtra & Gujarat.
  • The disbursement in the Rural Lending business at expected at Rs 75 crore in Q2FY2015, while the business is expected to be profitable from November-December 2014. The Rural Lending business is also expected to touch the net income level of Rs 100 crore in four-yeas time.
  • SME businesses (Mortgages, Business loans & Loans against securities) continued to grow in a robust manner with a very strong credit performance despite deteriorating external environment. The company is investing to grow its direct to Customer & Online distribution channels.
  • Business loans business continued to grow very well with strong credit performance. Additionally, Doctors business contributed to 15% of total disbursement.The co during this quarter launched first digital business loans model and disbursed Rs 4 crore in India's first 02 months of launch.
  • Mortgage businesses disbursed Rs 2000 crore (yoy growth of 50%), supported by new investments in products, channels & geography over the last 12 months.The company had to terminate 2 senior employees and 3 other employees in the mortgages business due to under reporting of delinquencies in Q1. The company made a provision of Rs 5 crore as per its current provisioning policy in Q1. None of these accounts with total exposure at about Rs 32-33 crore is in NPA category. The portfolio remains in good health, while company expects the reversals of Rs 3.5 crore from these provisions owing to regularization of these loans or exiting the relationship.
  • The company has decided to wind down its Construction Equipment business due to continued poor ROE performance. A renewed business plan had too many execution risks and yet forecasted a suboptimal ROE over the next 03 years. The residual portfolio will be wound down in next 15-18 months.Commercial Infra business continued to de-grow due to sectoral stress. The company continued to grow its auto component finance business. The company made an accelerated provision of Rs 5 crore for a stressed Infra account in Q1 with the exposure of Rs 50 crore.
  • The company continued to take proactive policy actions to take out bottom 7-10% of potential High Risk business. Collection efficiencies improved with increased contribution of digital collections.Current borrowing mix of BFL between banks, money markets and retail deposits is 58:42:02.
  • The company garnered Rs 137 crore of Fixed Deposit during the quarter taking the total deposit book to Rs 345 crore. Average deposit size is Rs 2.78 lakh for the tenor of 26 months. The cost of the deposits excluding SLR impact stands at around 9.84%.
  • The group has launched its first brand campaign called Go for Great this quarter incurring an expenses of Rs 8 crore.
  • Company expects the net income growth of 16-18%, while guides at the balance sheet growth of 20-25% in FY2015.

Bajaj Finance at its meeting held on September 10, 2014, has reviewed the performance of the Company’s mortgage business spanning across Loan Against Property / Home Loans & Lease Rental Discounting and has approved the formation of a Housing Finance Company as a wholly owned subsidiary of Bajaj Finance.

Read more at:http://www.moneycontrol.com/news/announcements/bajaj-finance-outcomeboard-meeting_1175308.html?utm_source=ref_article

Rajeev Jain - CEO of the company addressed the call:

Highlights by Capital Mkt:

  • The company witnessed a good quarter with consumer businesses seeing improvement in demand outlook since middle of August 2014.Co continued to readjust its portfolio mix to reduce the beta in its business model.
  • AUM surged 41% to Rs 28004 crore at end September 2014 from Rs 19829 crore at end September 2013. Disbursements jumped 50% to Rs 7816 crore in Q2FY2015 from Rs 5200 crore in Q2FY2014.Co.expects AUM growth of 34-35% for FY2015.
  • Customers acquired in Q2FY2015 exhibited an increase of 42% to 978174 from 689772 in Q2FY2014.Consumer Durable business continued its healthy momentum and disbursed 667 thousand cases posting 37% growth.
  • Lifestyle Finance business disbursed 82 thousand accounts showing more than three-fold growth, driven by digital products being facilitated tie-ups with leading manufacturers.However, furniture financing business grew only by 25% YOY due to de-growth in the furniture industry.
  • Cross sell momentum across Lending and Fee products remained strong.Salaried personal loans business continued to grow well with healthy credit performance.Rural Lending business is tracking ahead of plan and the business has started to be profitable. MSME rural lending launch planning has been initiated and is expected to go live by April 15.
  • Business loans continued to grow very well with strong credit performance.Mortgage business remained in a consolidation mode post May 2014 incident. Specific set of initiatives are in progress to re-energize the business.Loan against securities had an excellent quarter supported by new product & renewed channels strategy.
  • Construction Equipment business is now down to 320 crore and is in remedial mode. The portfolio is reducing by Rs 25 crore a month and will fully run off by September 2015.Commercial Infra business continued to de-grow due to sectoral stress. One Infra account slipped into NPA during the quarter. This account had earlier gone through CDR in 2012. The company is working with consortium on remedial action.
  • Gross NPA and Net NPA for Q2 FY15 stood at 1.41% and 0.48% respectively with a provisioning coverage ratio of 67% as of 30 September 2014.Portfolio remained healthy, while the movement in gross and net NPA was on account of an Infra account slipping into NPA. Adjusted for the same, Gross and Net NPA would have remained in line with recent trends.
  • The Company continues to provide for loan losses in excess of RBI requirements at 90 days NPAs recognition norms instead of 180 days. Thus, if revised NBFC guidelines due by month end includes provisioning under 90 days NPA recognition norms, there would not be any earning impact for the company.Current borrowing mix between banks, money markets and retail deposits is 53:45:02.
  • The company garnered Rs 96 crore of Fixed Deposit during the quarter taking the total deposit book to Rs 441 crore. Company proposes to raise the share of deposits to 10-11% of overall borrowing over next 2-3 years.The company has initiated work on its wealth management strategy around the anchor FD product.
  • Company launched and raised highest ever Tier-2 capital (sub-debt) tranche in Q2. It raised Rs 453 crore that increased its capital adequacy by about 1.25%.

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Q3 results are out. At first glance, it looks fantastic.

Total income up by 37% at 1485 crore vs 1082 crore (y-o-y)

Profit up by 33% at 258 crore vs 194 crore (y-o-y)

AUM up by 37% y-o-y at 30822 crores on 31st Dec 2015.

GNPA and NNPA at 1.50% and 0.49%.

Tier 1 capital at 14.72% and CAR including Tier 2 at 18.69%.

Stock reacted very positively to the numbers and it is up by 11% in a down market.

Highlights Of Conf Call By Capital Mkt:

  • The new customer acquisition was strong at 1.5 million in Q3FY2015, up 59% over Q3FY2014. The Co expects to record new customers acquisition of 5 million for FY2015.As per the co, the external environment is still not looking good. The demand pick up of Oct 14 could not sustain in Nov-Dec 14.Overall, the co witnessed a very good festival quarter with robust volume momentum & strong credit performance across Consumer & SME businesses despite a weak demand environment in second half of the quarter.
  • Consumer Durable business had its best ever quarter. It disbursed 1.12 million cases (61% YOY) despite 15% to 18% industry growth.Lifestyle Finance business disbursed 124 K accounts (350% growth), another highest for any quarter driven by Digital products. Tie-ups with leading manufacturers like Samsung, Apple, Sony and leading national & regional wireless chains enabled the business register this growth.
  • Rural Lending business delivered strong momentum in Q3.Co is witnessing disbursement of Rs 50-60 cr PM, in the rural lending business. The business has now cumulatively broken even and is profitable. Co continues to increase its footprint in a measured manner. Work on launching MSME rural lending business by May 15 has been initiated.Business loans segment continued to grow very well with strong credit performance. Professional loans now contribute to 17%-18% of Business loans origination.Loan Against Property business is in consolidation mode and is growing at a slower rate than company AUM growth.Co expects mortgage lending business growth at 25% for FY2015. As per the company, the share of mortgage business would remain in the range of 40-45% in the foreseeable period.Loan Against Shares business had an excellent quarter supported by new product and renewed channels strategy.
  • Construction Equipment business losses are fully provided for. The portfolio is now down to Rs 230 crore and is reducing by Rs 25 crore a month and will fully run off by Sept'15.Commercial Infra business remained in pause mode due to sectoral stress. The company continued to grow its auto component finance business.Interest cost for the company continues to remain significantly lower amongst NBFC peers. Current borrowing mix of BFL between banks, money markets and retail deposits is 47:50:03.
  • Co. garnered Rs 189 crore of Fixed Deposit during the quarter taking the total deposit book to Rs 641 crore. Average deposit size remained over 3.0 lakhs and weighted tenor is above 24 months.Co is working on its wealth management strategy around the anchor FD product.As per the co, at the current pace of business growth it would not require any capital infusion for next six-quarters.

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Conference Call - from Capital Markets

Targets loan growth of 25% for FY2016
Bajaj Finance conducted a conference call on 20 May 2015 to discuss its financial results for the quarter ended March 2015. Rajeev Jain - CEO of the company addressed the call:

Highlights:
• The company continued to strengthen its provisioning policy leading to 80% spike in the loan loss provisions in Q4FY2015. Company made a one-time provisions of Rs 17.4 crore in Q4FY2015, adjusting for which the loan loss provisions increased 53%.
• Despite a soft demand environment, the company witnessed a strong quarter with robust volume momentum and strong credit performance across Consumer and SME businesses.
• The company continued to readjust its portfolio mix to reduce the beta in its business model.
• Two Wheeler financing penetration of Bajaj Auto’s domestic Two-Wheeler sales inched up to 31% from 28% in the corresponding quarter for the previous year. Three-wheeler business volume declined 28% due to portfolio quality challenges.
• Despite a muted growth for the industry, consumer Durable business had a strong quarter disbursing 8 lakh accounts (up 53% yoy) in Q4. EMI cards contributed to 3.84 lakh customers acquisition for the quarter.
• Digital Products Finance business disbursed 87 thousand accounts (up 313% yoy) for the quarter. Digital product finance generates business of Rs 55-60 crore month, which company expects to jump to Rs 100-120 crore in FY2016.
• Lifestyle Finance business disbursed 24 thousand accounts (up 36% yoy). Focused account management with top 50 accounts helped deliver the growth.
• Salaried personal loans business continued to grow well with healthy credit performance. Digital channels now contribute 15% of new originations.
• Rural Lending business continued with excellent momentum in Q4. During the quarter, the rural business made entry into the state of Karnataka with the launch of 11 branches. It also increased its coverage in Maharashtra and Gujarat by adding 4 branches in these states.
• The company launched MSME rural lending business in mid March in 26 of its 50 branches.
• Business loans business continued to grow well with strong credit performance. Professional loans now contribute to 22% of Business loans origination. The company had carved out Professional loans as a separate business structure last quarter, which has come in to effect in Q4.
• Mortgage business remained in a hypercompetitive situation as all lenders want to grow this asset class.
• LAP business remained in consolidation mode and is growing at a slower rate than company AUM growth.
• Loan against Shares (LAS) business had an excellent quarter supported by new product and renewed channels strategy.
• Construction Equipment business losses are fully provided for. The portfolio is now down to Rs 175 crore and is reducing steadily every month. Company expects to completely wind down the construction equipment business by September 2015.
• Commercial Infra business remained in pause mode due to sectoral stress. The company has reduced the portfolio by Rs 100 crore in Q4FY2015. To grow its commercial business, the company is launching ‘Financial Institution Group’ vertical and ‘Light Engineering’ industry vertical.
• The company has launched its wealth management segment to build a more comprehensive‘ Relationship Management’ business by offering relationship services.
• Gross NPA and Net NPA stood at 1.51% and 0.45%, respectively with a provisioning coverage ratio of 71% as of March 2015. The Company continues to provide for loan losses in excess of RBI requirements.
• One large infra account mainly contributed to the fresh NPA in FY2015, while LAP slippages contributed partial fresh NPA in FY2015.
• Excluding the Infra, the GNPA stood at 1.3% and NNPA at 0.32% at end March 2015.
• Bad debt write off stood at Rs 182 crore in FY2015 compared with Rs 129 crore in FY2014.
• Interest cost for the company continues to remain significantly lower amongst NBFC peers. Current borrowing mix between banks, money markets and retail deposits is 54:43:03.
• The company garnered Rs 381 crore of Fixed Deposit during the quarter taking the total deposit book to Rs 983 crore. Average deposit size increased to above Rs 3 lakh and weighted tenor is above 20 months.
• The company has targeted loans growth of 25% and net income growth of 20% for FY2016. As per the company, the growth can be higher, if the economic environment turns better.
• On a sustainable basis, the company proposes to deliver an RoA of 3% and ROE of 18-20%.

Disc: Not Invested

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Good set of results from Bajaj Finance.

Y-O-Y:

Total Income up by 33%.
Pat up by 31%

GNPA and Net NPA stood at 1.69% and 0.55%.
CAR stands at 20.72% with Tier 1 at 17.41%.

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