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Bajaj Finance Q4FY14 results update

May 15, 2014, Thursday, 11:38 GMT | 06:38 EST | 16:08 IST | 18:38 SGT
Contributed by Nirmal Bang

Bajaj Finance Ltd (BFL) reported net profit of Rs 176.9 cr (+8.0% YoY) in Q4FY14 which was below expectations primarily due to lower than expected Net Interest Income (NII). Net interest income increased 21.9% YoY and declined 10.5% QoQ led by lower spreads as the company continued to re adjust its portfolio mix towards lower yielding SME segments. AUM growth remained strong at 37.4% YoY and disbursements increased 37.9% YoY led by growth in SME business (particularly LAP and cross selling business) followed by consumer durables (digital product sales and lifestyle financing).

Asset quality was relatively stable in Q4FY14 with gross NPA at 1.18% and net NPA at 0.28% (vs 1.15% and 0.23% in Q3FY14). One infra account worth Rs 25 cr slipped into NPA which led to increase in gross NPA. Apart from that almost all the product mixes witnessed 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 will continue to drive disbursement growth. Capital Adequacy Ratio of 19.1% will support BFL’s growth plan. However, with increasing contribution from SME business; comparatively lower margin yielding business 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 21.8% CAGR over FY14-FY16E. Continued focus on rural lending will further strengthen its position as a retail finance company. At CMP the stock is trading at 1.84x FY15E and 1.55x FY16E ABV and 10.05x FY15E and 8.45x FY16E EPS. We roll over our target multiple to FY16E and arrive at target price of Rs 2,070 (1.9x FY16E ABV); an upside of 18.3% from current levels.

- Current mix of bank & debt markets for BFL stands at 58:41. Balance 1% was from fixed deposit. Management targets to increase the proportion of fixed deposits to total borrowings to 15-20% in next 3 to 4 years.

- 2W financing de grew 20% whereas three wheeler business de grew 38% in Q4FY14 due to slowdown in the overall industry.

- Market share of BFL in the three wheeler business stood at 27%.

- Digital product sales contributed 15% to total Consumer durable business.

- BFL completed assignment worth Rs 323 cr of its mortgage loans.

- Barring infra segment, BFL provided at 90 DPD (days past due) for all other segments.

- 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 continues to focus on rural lending and plans to increase 21 new branches and 100 spokes in rural Maharashtra and Gujarat in FY15E.

- The company has declared dividend of Rs 16 per share.