Bajaj Finance - Growth story continues; still more steam left - Nirmal Bang

Bajaj Finance (BFL) reported net profit of Rs 163.8 cr (+51.1% YoY) in Q4FY13 driven by strong growth across SME and consumer business. Overall disbursement growth remained healthy at 21.3% YoY for FY13. However, net interest income declined sequentially and was marginally below estimates owing to the higher composition of the lower yielding SME product. The overall share of the SME segment increased to 48% in Q4FY13 as compared to 46% in Q3FY13. Cost to income ratio continued to witness improvement driven by operating leverage. The asset quality remained fairly stable with gross NPA at 1.09% and net NPA at 0.19%. However, there was one SME client which attributed to marginal increase in Gross NPA. Barring this, asset quality across segments remained fairly under control.

Going forward, Management has indicated for growth of 25%+ for FY14E. Margins may witness some compression owing to increasing mix of SME in the overall portfolio. Lower credit costs and operating leverage will be the key to strong performance going forward.

BFL continues to enjoy pricing power resulting from the benign competition and healthy asset quality. BFL has been consistently delivering healthy performance which is commendable given the current environment. 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. We expect profitability to grow at 25.3% CAGR over FY13-FY15E.

Demonstrating strong business model and excellent execution capability of the management, the stock has been an outperformer in the last one year generating a return of 71.9%. At CMP the stock is trading at 1.89x FY14E and 1.6x FY15E ABV and 9.85x FY14E and 7.89x FY15E EPS. Considering the recent run up in the stock we recommend our investors to HOLD the stock with a target price of Rs 1,638 indicating further potential upside of 11% from current levels. Any decline can be used as an opportunity to BUY the stock as our long term outlook remains positive.

- AUM grew by 33.6% YoY and 4.0% on QoQ basis at Rs 16,844 cr.
- Capital adequacy ratio increased to 21.95%, with tier I ratio of 18.7% after the capital infusion which will aid in growth trajectory for the company.
- Disbursement in the Lifestyle financing business stood at Rs 240 cr and is expected to reach Rs 500 cr in FY14E.
- Disbursements in the SME segment remain robust with growth across all business; working capital and loan against property products.
- The company has tied up with Apple for selling its iPhone product.
- The company did assignment of Rs 330 cr in Q4FY13
- Management has indicated that Bajaj Finance would be applying for banking license and would be converting into a bank.
- The company has declared dividend of Rs 15 per share translating into a dividend yield of 1%.

Source : Equity Bulls

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