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Bajaj Finance Ltd Q3FY14 results update

January 16, 2014, Thursday, 11:34 GMT | 06:34 EST | 16:04 IST | 18:34 SGT
Contributed by Nirmal Bang


Bajaj Finance Ltd (BFL) reported net profit of Rs 178 cr (+11.4% YoY) in Q3FY14 which was broadly in line with expectations. Net interest income increased 31.2% YoY and 19.0% QoQ driven by growth in AUM book and control over cost of funds. BFL reported 33.3% YoY growth in AUM and 44.8% YoY growth in disbursement led by growth in consumer durables (festive season) and SME business (particularly LAP and cross selling business).
 
Asset quality was relatively stable in the quarter with gross NPA at 1.15% and net NPA at 0.23% (vs 1.14% and 0.26% in Q2FY14). Except for two wheeler business and construction equipment business, almost all the product mixes continues to show satisfactory performance. Despite the challenging macroeconomic environment and the high risk segments where BFL operates, its focus on affluent segments and strong risk management framework have ensured stable asset quality, even in the riskier segments.
 
Going forward, SME business (particularly LAP) will drive disbursement growth. CAR of 19.5% will support BFL’s growth plan. However, with increasing contribution from SME business; comparatively lower margin yielding business for the company could lead to some margin compression going forward.
 
Strong loan growth, focus on distribution income, control over costs coupled with stable asset quality would drive performance for BFL. We expect earnings to grow at 20.6% CAGR over FY13-FY15E. Continued focus on rural lending, which is also in line with the company’s strategy in case it gets qualified for banking license will strengthen its position as a retail finance company. At CMP the stock is trading at 1.94x FY14E and 1.63x FY15E ABV and 11.19x FY14E and 8.87x FY15E EPS. We roll over our target multiple to FY15E and arrive at target price of Rs 1,810 (2x FY15E ABV) indicating potential upside of 17% from current levels.
 
- Current mix of bank & debt markets for BFL stands at 60:40.
 
- 2W financing de grew 15% in Q3FY14 due to slowdown in the industry. However, BFL has been able to increase its market share in the three wheeler business to 22% of total Bajaj Auto’s sales.
 
- BFL completed assignment of Rs 189 cr worth of its mortgage loans.
 
- Provisions increased as BFL provided accelerated provision of Rs 21 cr to bring 2W portfolio to 90 DPD (days past due).
 
- Distribution fee based income continues to remain strong with growth in fee based products like life and general insurance, wealth management and CRISIL ratings.
 
- BFL also launched a new fee product in Q3FY14 Consumer Financial Fitness Report for retail customers; is expected to generate additional fee income.
 
- BFL continues to focus on rural lending and has increased presence in nearly 67 towns in rural Maharashtra.
 
- BFL has applied for banking license and entry in rural market will further strengthen its position as a banking candidate.