Q2FY21 AUM grew 1.1% YoY to Rs. 137,090cr. As of 30th Sep, the AUM under moratorium improved to 8.0% (15.7% in Q1FY21). Net Interest Income rose 4.0% YoY to Rs. 4,158cr. However, PAT slipped 35.9% YoY, as provisions rose to Rs. 1,700cr from Rs. 594cr in Q2FY20....

We maintain Hold with target price of Rs 3297 (4.6x FY22E ABV).

Bajaj Finance (BAF) in its business update for the quarter ended September 2020 reported muted AUM growth of 1.3% YoY and almost flattish QoQ growth at Rs 1,37,300cr. Management loan growth guidance is 5% for FY21. New loans booked stood at 36lac vs 65 lac YoY but better than 5.3lac in Q1FY21.

IIP improves further

Risks and scenario analysis: The uncontrolled spread of COVID-19 could result in sustained disruption to economic activity beyond FY21E, and this poses downside risks to our estimates. In an attempt to measure the impact of such outcomes on our estimates, we have examined them under three scenarios. In our most extreme scenario, (1) FY21/22/23E RoAEs could fall to 8.1/12.8/15.2%, (2) FY22/23E ABVs could be 10.5/9.6% lower (vs. our base case), at Rs 623/760, and (3) our assigned multiple would fall to 3.7x. We initiate coverage on Bajaj Finance (BAF) with an ADD rating and a target price of Rs 3,643, 4.7xSept-22E ABV. It is one of the largest NBFCs and perhaps the most diversified one in the country. It has consistently delivered strong performance across fronts. Over FY13-20, its AUM grew at a CAGR of ~35%, RoAEs averaged ~19.6%, and GNPAs did not exceed 1.7%. However, its near-term performance is likely to be a stark contrast to that seen in recent times due to the overarching impact of COVID-19. FY21E is likely to be an aberration in terms of growth, asset quality, and return ratios, but we expect a significant recovery in FY22E. While our near-term outlook may seem lacklustre, we believe that BAF's long-term prospects remain reasonably intact, despite COVID-19. Further, we believe that current valuations do not adequately price in BAF's potential to sustainably deliver superior return ratios in the long term. This underpins our positive stance.

Q1FY21 AUM grew 7.1% YoY to Rs. 138,055cr. As of June 30 th, 15.7% of the consolidated AUM was under moratorium. Net Interest Income rose 12.4% YoY to Rs. 4,151cr in 1QFY21. However PAT fell 19.5% YoY due to continued high provisioning (+206.1% YoY). As of 30th June i) Capital adequacy ratio stood at 26.4%; ii) Tier I capital at 22.6%; iii) Gross NPA at 1.4%; iv) Net NPA at 0.5% and v) PCR at 65%. Outlook remains positive for the stock with continuous reduction in provision coupled with company's focus on capital preservation,...

Depreciation moved up 34% to Rs 84.22 crore, while loan loss provisions zoomed 206% to Rs 1685.73 crore in Q1FY2021. PBT dipped 29% to Rs 1309.69 crore. Effective tax rate declined to 26.5% in Q1FY2021 from 35.4% in Q1FY2020. Net Profit of the company fell 19% to Rs 962.32...

Bajaj Finance Ltd reported numbers below our estimates. NII at Rs38.7bn grew by 8.3% YoY, but was down 13.3% QoQ. Our calc. NIM was 9.5%, down 37bps YoY and 95bps QoQ, impacted due to interest reversal of Rs2.2bn and higher balance sheet liquidity (impact of Rs1.7bn). AUM growth was 7.1% YoY and negative 6.2% QoQ. We estimate disbursements to have been lower by 68% YoY given that business operations were closed till 10th May 2020 and restarted gradually as the lockdown was lifted. 86 locations, as of today, continue to remain closed for business, which represent about 15% of the total business. Among the ones that are operational (85% of the business), the economic activity is extremely restricted, thereby impacting growth. Fee income...

Bajaj Finance (BAF) reported 7% YoY AUM growth in Q1FY21.

Bajaj Finance (BAF) reported PAT of Rs 962cr down 19.5% YoY and up 1.5% QoQ, better than expectations on higher other income and improved C-I. However AUM growth was muted at 7% YoY impacted by lockdown and elevated provisions at Rs 1686cr. Asset quality improved with GNPA down 21 bps QoQ to 1.4%

21 July 2020 Bajaj Finance (BAF)s 1QFY21 PAT declined ~20% YoY to INR9.6b (8% beat). Other operating income of INR8.6b (v/s est. of INR4.6b) led to PPoP (+25% YoY) beat of 12%. NII and opex were in line with expectations. As of June end, ~16% of the consol. (INR217b), as against 27% in April (INR386b). The reduction was driven by the Auto, Rural, and SME segments (refer to Exhibit 9). The conversion of term loans into flexi loans led to ~22% (INR36b) of overall decline. GNPA declined 20bp QoQ to 1.4%, aided by high write-off of INR4b. PCR increased 450bp QoQ to 65%.

operating leverage. While current asset quality masks true picture on delinquencies, asset quality management stands impressive with (a) morat AUMs at 18% (including flexi loans morat) (b) elevated COVID provisioning of Rs24bn covering 11% of moratorium book (c) collection ramp-up (added 2500 staff to 4500 existing collection staff), collections up 8-10% in each Jun- Jul (d)improving bounce rates by 3-4% every month from past 3 months (c)...

Bajaj Finance Ltd (BFL) reported mixed Q1FY20 numbers, with tepid business growth, but a q-o-q improvement in asset quality and a decline in the moratorium to 15.7% of AUM from 27%, which is a positive. Assets under management (AUM) stood at Rs. 138,055 crore, down 6% q-o-q due to steps like more stringent loan-to-value ratios (LTVs), tightened credit filters, etc. which indicated a cautious outlook on growth by the management. However, growth guidance was moderated by 10-12% and a higher credit cost guidance of 100-110 bps (against ~80-100 BPS earlier) for FY21 were key notables. Net Interest Income (NII, calculated) stood at Rs 4150 crore, up by 12.5% y-o-y but was down by 11.3% on q-o-q...

NPA pain temporary, focus on the long-term structural story We initiate coverage on Bajaj Finance (BAJF) with a BUY rating and fair value estimate of Rs3,026, based on 4.5x FY22E ABV. We are cognizant of the near-term concerns that investors have regarding asset quality and loan growth challenges. While we concur with this view and build the same into our near/medium-term numbers, we also believe that these numbers would only be transient in nature. Structurally, we think that the company is on a solid footing with respect to steadystate profitability, balance sheet strength, underwriting capability and the larger macro opportunity in the consumer finance segment. Customer-reach is supported...