I think there is so much focus and discussion on the CD loans. I think one of BAF;s biggest strength is their ability to cross-sell. Last quarter more than 70% of their loans was to their existing customers. They have 26 million customers 60% of whom don’t have a credit card hence acquisition costs for their credit card business is going to be low. BAF customers have about 5 lakh crores of mortgage loans with other lenders part of which can be transferred because existing customers pay a higher interest rate than new customers and also BAF some attractive top-up options in the form of OD facilities.
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When I had visited Croma to buy an appliance (just before demo), I observed that although there were different options for financing, Bajaj reps were quick to approach me and had sealed the deal. After few weeks, I visited another store, I had similar experience. One can visit the nearest Croma or Vijay Sales or any other store. I think the experience will be similar. Better to check out first hand.
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I agree to your point on online sales. But here is HDFC Bank offering their savings account holder a zero EMI payment plan immediately when I swipe the card. This can be done at any physical retail store, as is evident when I click the link I shared.
Someone mentioned valid point about customer acquisition. BAF has to be present at that point of sale. Whereas someone like ICICI Bank or HDFC Bank do not have to be present because the card holder is already their customer. If I already have one of these cards, and am getting a loan on it from them, why should I take on one more card (that offered by BAF)?
Someone also rightly mentioned about risk management through recovery. Well, if I have a savings account with the bank, they would already have much more detailed and granular information about my transactions history to be able to decide my credit risk. If I have cheque bounces in my account, probably I would not be eligible for the plan.
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If Recovery is the MAIN differentiating factor in lending business then here’s a list of Retail lenders which are recovering at least 98%+ of money lent
1 - HDFC Bank
2 - Kotak Mahindra Bank
3 - IndusInd Bank
4 - RBL Bank
5 - Gruh Finanace
6 - Can Fin Homes
7 - PNB Housing Finance
8 - Bajaj Finance
I’m sure There will be others…
Now how many of these companies are growing loan book at 35% and can continue to do so in the near future
1 - Bajaj Finance
The driver of this super normal growth is superior Customer Acquisition. Once the customer is on board, there is always the cross sell business as @Batterinram mentions.
While other factors like Recovery, Efficiency, ALm management etc are also important, these will probably put BFL only in the top tier of good companies
But to reach the status of a Great Company - you need that EXTRA differentiator.
That is why it is the Moat- The area where others are unable to match you.
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“But here is HDFC Bank offering their savings account holder a zero EMI payment plan immediately when I swipe the card.”
I am not sure the above quote you made is true . May be you missed certain words. EMI options would not be on savings account nor debit card. It should be primarily a credit based card/solution .HDFC provides Zero EMI only on certain Ecommerce transactions and not eveywhere in purchases. HDFC Credit Cards have this option of converting into EMI but it has charges and fee. That is it charges around 18% per year
https://www.hdfcbank.com/personal/products/loans/loan-on-credit-card/smartemi/rates-fees
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Blockquote
Someone mentioned valid point about customer acquisition. BAF has to be present at that point of sale. Whereas someone like ICICI Bank or HDFC Bank do not have to be present because the card holder is already their customer. If I already have one of these cards, and am getting a loan on it from them, why should I take on one more card (that offered by BAF)?
Blockquote
Again , this assumption is wrong. The general purchase conversions which you make in stores have 18% interest charges and GST and other fee, it will be effectively around 19-20%. However what Bajaj Finance and Capital do is slightly different, they get back the credit amount from the seller rather the buyer and hence as a consumer you would benefit. HDFC and some other bank credit cards have this facility(0 EMI) for certain(not all) Ecommerce transactions but not in store purchases like Bajaj Finance /Capital First does
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I am holding this stock from Rs 400, and i thought this would be retirement bet. However looking at the current economics and the current valuations make me question my hypothesis
My original thesis for investing however holds true still. I have purchased Bajaj finance thinking Consumer Lifestyle Business is their moat. However realized that It is their forte, but never a moat. I was sure at some point NBFCs/Banks will look at the lucrative option and jump in other possible ways once they see the size and scope . The thesis i had in mind is since Bajaj Finance is already having good base both operationally and strategically in Consumer financing due to Consumer Durables Business, it would be quite reasonable to estimate that they would leverage this infra/competency/funds in other lending businesses which would help them grow.
So they already have a strong CD base, so even though it doesn’t grow as long as it remains stable that is sufficient for Bajaj Finance , because remember as competitors are entering BF’s space ,BF itself is entering and eating into other lending types. This thesis has played perfectly. While everyone is worried BF will get hit due to competitors in CD space(which is 35% of assets) what we forget is BF is slowly expanding in Rural Segments, Housing Segment, SME segment and the scope is unlimited.
I am open to inputs if anyone can poke bubbles in my above thesis
Now, inspite of my thesis playing out why am i still apprehensive? Valuation bubble breaching due to any economic uncertainty
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There is no need to get jittery imho. It is ultimately management capability which has been proven again and again. Economic circumstances will be challenging in the near term but that applies to all players. If BF is challenged then I don’t want to think about others. The new fad cos-flipkart/amazon/Xiomi jumping into the lending business will not dent much. There are so many new banks which have come in but HDFC stands tall. Similarly BF should be very steady.
But again everyone’s perception is different
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Dear @vistag
Would humbly request to click on the link and spend some time understanding their offering. (1) It is not restricted to online purchases (2) Covers consumer durables, lifestyle etc goods (3) Is available on Debit card, credit card and as normal consumer loan.
Regards
I take back my say on HDFC Debit Card Loan . However looks like a clever marketing maneuver. A debit card can be used only when you have money to pay for something and then the money is being reconverted into an EMI by HDFC.
However like i said earlier HDFC No Cost EMI is specific to limited brands (around 5) and even though they list Croma as brand partner , Croma Online sales still show Baja Finserv as No Cost EMi default option.
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Dangerous assumption however unlikelu.Never take things for granted. Many behemoths have become fallen angles like Xerox,Kodak,Nokia,Blackberry list goes… and even in India like Premier, Hindustan Motors etc
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It is going to be difficult to claim leadership in consumer loan segment, recently RBI issued license to a swedish company for digital NBFC operations. PE ratio for Bajaj twins will come down in coming years
It is not going to be easy to compete against the big boys
I have a different take on this a lot of companies that you have mentioned are housing finance companies who take close to a month to sanction loans which are by the way secure loans. However for CD loans you don’t get a lot of time to assess the borrower so you really need to do something different. About a decade back a number of banks provided CD loans but they had high NPA and had to withdraw from the market. Even now I think HDFC bank is a bit cautious about whom they will lend to and for what products because of what happened in the market before. So if you have mastered the process of giving CD loans to low risk customers and others are not able to replicate it easily that is a moat. With widespread use of CIBIL scores you can argue that things have become easier for others. However is access to CIBIL score the only consideration or does BAF use superior analytics to achieve this. If its the latter then it is definitely a moat.
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Most investors see Bajaj finance as a pure retail lending play especially for consumer durables.
If you go through investor presentation then you would find that AUM exposure for Retail is 38% and commercial is 13% and mortgages is 28 %.
Could a long time holder of Bajaj finance explain the commercial business? Is it wholesale lending?
Theres no GNPA figure on commercial business in investor presentation.
Consumer durables are unsecured assets and I don’t think if a borrower of a mobile phone has a intention of not paying back then Bajaj finance has an edge over other lenders. From what i understand they ask for a bank mandate linked to borrower. However can’t a borrower empty his bank account, if he has no attention of repaying?
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- Pls refer slide 9 of the same ppt.
- What do you mean by bank mandate?
Of course, the savings acct is of no consequence to the lender. A borrower can hv many accts. Maybe, in case a lender isn’t convinced of a borrower’s credit worthiness, he can ask for a savings acct statement (as well alongwith many other documents) to check the history of debits and credits, other loan repayments, etc. It is more to do with technical part i.e a borrower needs to service the loan from some acct and the lender needs to transfer loan to some acct.
Rgds
RR
From page 11 of investor presentation:
- Offer wholesale lending products covering short, medium and long term needs of Auto component, Light Engineering and Specialty Chemical companies and Financial institutions in India
- Offer a range of structured products collateralized by marketable securities or mortgage
I don’t know the exact entities to which it lends to. I would guess that the auto component and light engineering businesses that BFL lends to would be suppliers of manufacturing entities of Bajaj Group (eg. Bajaj Auto, Bajaj Electricals etc).
During the AGM the MD mentioned that (posting a quote from a post I made after attending the AGM):
So commercial lending and mortgage business are going to be major growth drivers for BFL going forward. I understand that the management had predicted the growing competition in the retail lending business.
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Just another view/perspective here. I was thinking about Bajaj finance and it’s overall business which is very lucrative. I agree that it is one of the best NBFCs out there and we should surely hold it. On the other hand I was also thinking about the whole Bajaj group - Bajaj Auto…
Now getting into Bajaj Finance at this premium valuation doesn’t seem right to me as it doesn’t provide any value cushion. I personally think that it is better to play the Bajaj story by investing in “Bajaj Holdings & Investment Ltd” which is a holding company and owns significant stake in all the Bajaj companies. Moreover it is available cheap, gives better dividends and we get to play the whole finance story as well as other good Bajaj companies.
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Got this with my HDFC Bank account statement - Bank getting into EMI cards:
Clicking this further, it brings me to this link: