Bajaj Finance - Results in line with expectations; growth story continues - Nirmal Bang

Bajaj Finance (BFL) reported net profit of Rs 175.7 cr (+26.8% YoY) in Q1FY14 in line with expectations; driven by strong growth across consumer and SME business. Disbursement growth was strong at 32.2% YoY supported by consumer durables (40.7% YoY) and SME business (39.4% YoY). Net interest income was higher sequentially reflecting lower cost of funds and change in asset mix. The overall share of the SME and consumer continued to remain higher. Asset quality witnessed slight pressure with higher gross NPA at 1.14% and net NPA at 0.25% owing to slippages in construction equipment and two wheeler businesses. Cost to income ratio was broadly stable despite higher cost due to steady growth in income and operating leverage.

Going forward, consumer and SME business (particularly LAP) will continue to drive the disbursement growth. BFL has adequate capital of 21.5% with Tier I ratio of 18.1% which will support the growth plan. Adhering to Usha Thorat guidelines, BFL has made standard asset provisioning at 40 bps (from 25 bps earlier) for its portfolio except two wheeler and took additional hit of Rs 17.7 cr in Q1FY14. The current measures taken by RBI to tighten liquidity may impact the company's margins only in H2FY14E as per management. Lower credit costs (prudent practices followed) and operating leverage will be the key to strong performance going forward.

BFL has been consistently delivering healthy performance which is commendable given the current environment. With control over NPAs, targeting 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 22% CAGR over FY13-FY15E. At CMP the stock is trading at 1.74x FY14E and 1.47x FY15E ABV and 9.31x FY14E and 7.59x FY15E EPS. Post the recent correction in the stock, we recommend to BUY the stock with a target price of Rs 1,628 indicating potential upside of 21% from current levels.

- AUM grew by 32.8% YoY and 9.8% on QoQ basis at Rs 19,229 cr.
- Two wheeler financing growth witnessed some slowdown reflecting weakness in the overall market. However, market share continued to remain around 30% of Bajaj Auto's domestic sales.
- Three wheeler business is showing steady growth signs and market share stands at 17% of total Bajaj Auto's sales.
- BFL tied up with Apple for selling iPhone and with Dell for selling laptops.
- Fee based income continues to remain strong with growth in fee based products like life and general insurance.
- Provision coverage ratio stood at 78% in Q1FY14
- Disbursements in the SME segment remain robust with growth across all business; working capital and loan against property products.
- Management intends to increase rural penetration even if it doesn't get qualified for banking license as rural areas offer tremendous business scope.

Source : Equity Bulls

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