Recommendations » India

Bajaj Finance Q3FY13 results update

Contributed by Nirmal Bang

Bajaj Finance (BFL) reported net profit of Rs 160 cr (+33.4% YoY) in Q3FY13 driven by growth across consumer and SME business. Management continues with its cautious approach towards infra and construction lending leading to a de growth in the commercial book. The company provided one time provision of Rs 7.5 cr on an infra loan which led to an increase in overall provisions of the company. The asset quality remained fairly stable during the quarter with gross NPA at 1.0% and net NPA at 0.2%. Other operating income witnessed some sort of pressure in this quarter. However, control over marketing and recovery costs led to a remarkable decline in cost to income ratio of the company. We like the company’s mantra of “Aiding growth instead of creating growth” which has led a sustainable growth in the company’s loan book. The company has been able to grow in a scenario where the consumer discretionary was soft, autosector performance was flat and consumer durables industry grew 6-8% on an overall basis. However, Management believes that once the economy recovers leading to an improvement in consumer discretionary spending, Bajaj Finance would be in a position to outperform the broader market. Going forward, we believe that Bajaj Finance will continue to show a strong growth trajectory. With control over NPAs, wider access and strong growth in the book, Bajaj Finance will continue to strengthen its position as a retail finance company.

At CMP the stock is trading at 2.09x FY13E and 1.77x FY14E ABV and 10.37x FY13E and 9.64x FY14E EPS. We arrive at a target price of Rs 1,638 (P/ABV multiple of 2.1x) indicating further potential upside of 18% from current levels and recommend to BUY the stock.

Key development

The company in on track to capitalize itself sufficiently to adhere to the Usha Thorat Committee recommendations regarding higher capital requirements. The board has approved to raise capital via rights issue of Rs 743 cr at Rs 1,100 per share, leading to 16% equity dilution. We have factored in the dilution in our FY13E estimates.

- Net Interest Income increased 35.5% YoY to Rs 471 cr in Q3FY13 resulting from growth in disbursements on YoY basis and lower cost of funds.

- The growth in disbursements stood at 20.0% YoY to Rs 5,200 cr in Q3FY13. Management expects the overall loan book to witness strong growth for FY13E with more focus on secured businesses.

- Asset under management (AUM) grew by 41.3% YoY and 9.6% on QoQ basis at Rs 16,844 cr. Management expects AUM to reach around Rs 17,500 cr by FY13E.

- Asset quality remained fairly stable in Q3FY13. Construction Equipment book’s receivables portfolio deteriorated sharply in line with sharp deterioration in industry performance.