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Research
Bajaj Finance - Healthy growth, better productivity, stable asset quality; Buy - Anand Rathi
Posted On : 2013-07-20 03:38:33( TIMEZONE : IST )
SME and consumer finance drive robust loan growth. Bajaj Finance's net profit grew 26.7% yoy, driven by strong growth in assets under management (AUM), up 32.8% yoy. The proportion of SME finance in AUM rose 410bps yoy to 48.7%. Disbursement growth was a healthy 32.2% yoy, driven by strong disbursements in consumer and SME finance at respectively 40.7% and 39.4% yoy. Rising discretionary spending coupled with the first-mover advantage and a varied product mix would aid the NBFC achieve a strong 25.6% CAGR in loans from FY13 to FY16.
Lower NIM, better productivity. Calculated NIM on AUM slipped 60bps yoy to 13.1% on account of a larger proportion of the relatively lower-yielding SME-finance business. Ahead, we expect NIM to be stable, given easing short-term interest rates offsetting the likely higher share of the secured-mortgage business. Cost-income improved 79bps yoy to 45% on account of the control over marketing and recovery commissions, despite the rural branch rollout. We expect cost-assets to further improve to 5.1% by FY16, from 5.5% in FY13.
Stable asset quality, adequate NPA coverage. Asset quality was stable with gross non-performing assets (GNPA) at 1.14%. NPA coverage of 78.1% is better than that of most of its peers. Credit cost rose 40bps yoy to 1.5% as the NBFC provided `177m more for the higher standard-asset provisioning of 40bps (from 25bps earlier) and increased delinquencies in construction-equipment and the two-wheeler sub-segments. We expect credit cost to be a stable 1.3% given the rising share of secured advances.
Our take. We expect the healthy loan growth, rising proportion of secured lending and improving productivity to drive a sustainable RoA of more than 3.3% over FY13-16. We maintain a Buy. At our price target the stock would trade at 2.1x FY14e and 1.8x FY15e BV. Our target price is based on the two-stage DDM (CoE: 15.3%; beta: 1.04; Rf: 8%). Risk: Lower-than-expected economic growth could reduce loan growth and increase NPA.
