Results came out at 1.30 ish in the afternoon and market gave it a thumbs down, in general but stock somewhat sailed with nifty recovery towards close.
Here is the commentary from moneycontrol
https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=50695
As per the point no. 4 in RBI’s draft report, it seems that Bajaj finance may be able to turn into a bank (depending on RBI’s approval). What impact will it have on the company? Also, would the company want to be a bank (in case it gets an option) or is it better to stay as NBFC given the high amount of compliance RBI asks from the banks (e.g. reducing Promoters’ stake to 15%)? Looking forward to members’ insights.
The committee has recommended this limit be increased to 26%. Also the RBI gives 15 years to comply to this rule for new banks. So if for example the promoter stake is 50% when converted to a bank, the promoters will have 15 years to reduce this to 26%
You are right about increasing the limit to 26%. But the question is if management wants to reduce it at all. I got this year old interview of Sanjiv bajaj where he is categorically saying ‘No’ to a banking licence.
At the same time, I am not sure if RBI can force big NBFCs’ to change to Bank like RBI deputy governor is recommending below-
Views of Sanjiv Bajaj four days before the recommendation received by RBI…
At the risk of sounding naive, i would like to know how BFL will be valued by market if it becomes a bank?
In the past it gave good returns because it was not a bank and markets assigned a premium to it. Will the same thing continue?
Use of technology has been projected as the USP or backbone for its operations, similar capability or slightly lesser is available with HDFC bank (it has other advantage of being a bank for far longer than BFL)… Then will HDFC bank wouldn’t be a better option for someone who wants to invest in a bank?
Bulls are having a good time in Bajaj Finance. Time for a 
view. While reading the investor presentation the cost of capital is shown as 8%. Don’t understand why the bulls are claiming that the cost of capital has come down to 4.5%.
The share price is at precarious levels considering that current years earnings may be lower than last year’s. The ECL stage 1&2 provision has been increased 10 times, when compared to previous year, while the write off is lower than last year, implying that the write off is yet to come. Even though I have not taken any loan from BF, they have called me several times in the past month, offering a measly personal loan, with different interest rates.
Investors are cautioned that financial companies typically earn a low unleveraged return on their capital. They then have to lever up that capital several times over with money from lenders and depositors in order to earn an acceptable return on shareholders equity.
Recently Bajaj Finance has raised capital at 4.66% per annum https://economictimes.indiatimes.com/markets/stocks/news/bajaj-finance-raises-rs-755-cr-by-issuing-bonds-on-private-placement-basis/articleshow/79551831.cms
Thanks for the updation. Hopefully some of this will be reflected in the next investor presentation. However it is the total cost of funds which will be reflected. Wonder why they are offering interest rates upward of 6% for fixed deposits? Perhaps a tacit admission that the low NCD rates are not here to stay?
Bajaj Finance Q3 highlights -
NII at 4296 cr vs 4535 cr in Q3 last yr
Q3 AUM at 143000 cr vs 145000 cr in Q3 last yr. Company expects core AUM growth to go back to pre COVID levels by Q4 21
Consolidated cost of funds at 7.78 pc, expected to go down to 7.5 pc by Mar 21
Loan loss provisions at 1352 cr vs 831 cr in Q3 last yr. Company has also done one time principal write off of 1970 cr due COVID related stress. Company holds management overlay provisions of 800 cr as on Dec 20 for COVID related stresses. From FY 22 onwards, company expects loan losses and provisions to be at pre COVID levels of 160-170 bps. If recoveries are better in FY 22, they may experience even lower loan losses in FY 22.
Company had guided for total provisions of aprox 5900 cr for FY 21 - due COVID related stresses… Post this provisioning of 1352 cr in Q3, company expects a residual provisioning of 1200-1250 cr for Q4. If loan recoveries are better, there may be a downward revision.
GNPA and NNPA at 0.55 pc and 0.19 pc. Adjusted for Supreme Court’s judgement, GNPA and NNPA at 2.86 pc and 1.22 pc.
Capital adequacy ratio at 28.18 pc . Tier 1 at 24.7 pc
PAT at 1146 cr vs 1614 cr due higher provisions of 1352 cr vs 831 cr. Profitability likely to be boosted from Q1 FY 22 onwards due normalising of provisions.
Disc- holding Bajaj Finserv
Investment Horizon.pdf (886.1 KB)
Uploaded as a PDF instead of evernote link on request of moderator.
The below is a reflection on my thought process of concentrated portfolio skew towards BFAL, the thoughts about the risks of concentration v/s the virtue of compounding with a great management and business. This is for personal reflection and should in no way be construed as an advice good or bad.
Let us think for a moment when we say BFAL is just a lending business; it is risky and we should have electronic equipment producers, AC’s manufacturers, white good producers, Mobile phone component producers, digital advertisers, technological consulting (offshore/onshore) plays or probably some plays on BIG DATA/Connected Devices, Data Mining/ predictive analysis and such niche business in our portfolio you know to manage risks; to diversify and enjoy the uncanny growth if in at least a couple of such opportunities so we enjoy the returns when a few of these business could probably grow really big in future no one has capability to predict.
WE cannot compare with FMCG business where the ticket size for a biscuit or a milk powder box is from Rs. 10 to Rs. 200; but then in these business much of the Value migration thesis or the Market share concentration has already played out to an extent that the growth opportunity cannot be a 25% CAGR for the next decade.
OR
the other thought process actually says why not go to overseas to Invest in something as good as AMAZON or SHOPIFY or APPLE.
(BTW. from Jan. 2010 to 21st Jan 2020, BFAL has given a CAGR returns of 65% v/s Amazon returns of 44%) { In INR Terms}
Let us ponder about a few points
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India is a country of growing millennial population, a large population who does not only wants to earn much but also wants to enjoy life by going on vacations, buying lifestyle products, shopping for clothes, jewelry, gadgets, bikes, cars. They just don’t want to earn and simply save. They want to experience the comforts of life be it getting an AC on rent in a PG for a call center guy, or a mobile phone or a bike on EMI.
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Vast majority of such aspirational needs cannot be met up with upfront payments. So, whosoever may produce it be it whirlpool making an AC or APPLE launching a new IPhone or an IPAD or an AFFLE triggering an marketing add conversion; the ultimate azimuth of all this is that a payment would have to be made for an Amazon, or an apple or an Whirlpool or for that matter an AFFLE(add has to get converted to revenue right…) to actually make money.
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If the people won’t have the resources to buy these things and pay in full either now or later no one be it an apple or an whirlpool or an Affle would make any money. So, from a risk standpoint if consumers ultimately won’t have money to pay eventually everyone will loose and no one could actually gain. BFAL won’t be the only one losing here.
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Now let’s come to another important segment that has emerged off quite recently which is health care, the kind of AAROGYA Ecosystem BFAL and B Finserv has got in with the kind of franchise power it already has; the kind of tight grip they would have in time over the segment.
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Coming to niche technology plays, BFAL is not a technical consulting plays but it is a pure technological play in Live Action demonstrated in the way of its efficiency at PoS, online processing, the best of talent pool it has acquired of and the systems and infrastructure it has created meticulously over the years. The sheer size of its IT and process spends 1300 Cr. over the last decade is more than the turnover of the niche plays and just look at the asset sweating ratio of these IT investments. The kind of ROIC that the IT implementations it has gained over last decade is a far cry for a mainstream best in class IT company too
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TO add to this is Agile, Focused, Honest and competent management
So by holding BAJFINANCE you are diversified to get a share in Earnings of
- Apple, whirlpool , Voltas, Dixon, Amber, Reliance digital, Amazon Sale, Flipkart Sale
- Trent, Aditya Birla Fashion, Myantra
- Make My Trip, IBIBO, Affle
- Apollo Hospitals, other tie up hospital chains etc.
- An IT infrastructure Efficiency better than TCS, Happy Minds and Route and So on
- Share of Credit Demand of new India at an unmatched Asset Ratios
FOR us this is too much of a diversification already.
Looks an interesting move.
Another intrsting point is, the app is focussed for Merchants, so more like a B2B payment solution, then focussed on the retail side.
Disc : Invested.