Bajaj Finance Ltd. share price target

The Company is well capitalised with CRAR of 25.01% as at 31 March 2020. The Company remains one of the most capitalised amongst large NBFCs in India. The Company's liquidity position remains very strong with overall liquidity surplus of approximately Rs. 15,725 crore as of 31st March 2020 on consolidated basis. The Company's liquidity surplus as of 15 May 2020 was approximately Rs. 20,900 crore. In accordance with the RBI guidelines relating to 'COVID-19 Regulatory Package' dated 27 March 2020, the Company has offered EMI mortarium to its customers based on requests as...

(down 41%QoQ/19%YoY) for BAF. The 81-day quarter witnessed 5%QoQ growth in customer franchise, 1.4%QoQ/27%YoY growth in AUM translating into 3%QoQ/38%YoY increase in NII. Steady NII traction and lower opex (declined 5%QoQ) despite collection infra ramp-up aided healthy operating profit (up 8%QoQ/46%YoY). While inherent unsecured short tenure business stands susceptible to pandemic shocks, incremental asset quality deterioration should not exasperate as: (a) 68% of customers under morat...

BAF Q4FY20 performance was impacted by higher provisions which led to higher than expected decline in PAT by 19/41% YoY/QoQ to Rs 948cr. NII was in-line with expectations at Rs 3,755cr. AUM growth decelerated to 27%YoY at Rs 147,153cr, as the last 10 days of Mach were non-functional (4500cr impact).

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.