Bajaj Finance Ltd. share price target

Bajaj Finance Ltd (BFL) reported mixed Q4FY20 numbers, wherein operational numbers were better than expectations. However, a spike in provisions (mainly due to COVID-19 related provisions and one-offs) resulted in PAT coming below expectations. Consolidated net interest income (NII) grew to Rs. 4,684 crore (up 37.8% y-o-y, better than expectations) but PAT came at Rs. 948 crore (down 19.4% y-o-y), below expectations due to higher provisions. During Q4, provisions jumped to Rs. 1,953 crore (up by 135% from Q3) mainly due to one-time provision of Rs 1,419 crore (COVID-19-19 provision Rs 900 crore, Rs 390 crore for two large accounts now...

19 May 2020 BAFs 4QFY20 PAT declined 19% YoY to INR9.5b (28% miss due to provisions). Better-than-expected margin performance led to PPOP (+46% YoY) beat of 5%. Accelerated charges for two large NPL accounts, the recalibration of its ECL model, and COVID-19 provisions (on std. assets) of INR14.2b were reported during the quarter. At April end, 27% of the consol. AUM was under moratorium, with a ~35% bounce rate, by volume (37% in May). The company remains comfortably placed on liquidity, with cash and bank balance of INR209b (~19% of May). As of April, consolidated AUM declined 2.5% month on month to INR1.43T (no lending in B2B / Auto Finance). The company has a granular and high-churn Retail/SME portfolio. 37% of loans mature within a year. The business model relies significantly on the addition of new customers and good macros for cross-selling to existing customers.

Our adjusted ALM analysis reveals that even if ~50% customers avail the moratorium, BAF would be able to meet its debt obligations (but not disburse any fresh loans) and sit on excess liquidity of ~INR90b (this does not factor in any new borrowings), (c) has the least leverage (~4x) among large NBFCs it has recently raised INR85b (~40% of net worth), which stands it in good stead v/s other NBFCs. We conducted product-wise scenario analysis of credit costs depending on the net slippage ratio. Note that public deposit rates are competitive with those of other We believe BAFs long-term thesis remains intact; the company has (a) strong customer acquisition helped by large distribution network, (b) an ability to create a profitable business model in an already crowded market, (c) created a niche in few product/customer segments, (d) a disciplined liability and ALM approach, (e) an ability to monetize customer base and improve asset-light income streams, and (f) high flexibility on opex.

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We expect BAF, MUTH and MGFL to register strong AUM growth in Q4FY20 even as efficient opex and risk management keep profits buoyant.

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We expect the Covid-19 crisis to disrupt credit growth in FY21 as lenders turn cautious and customers pare discretionary spends.

In a conference call, the management of Bajaj Finance has said business growth and collection remained healthy in January-February 2020. With disbursements coming to a standstill, post the lockdown in March 2020, growth momentum has been impacted. Key takeaways of conference call: The management has provided a broad estimate of business based on...

We present key takeaways from our meeting with the Bajaj Finance (BAF) management.

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