Bajaj Finance Ltd (Q1 FY21) - ADD (Target Rs3,600, Upside 9.3%) - YES Securities

Overall, an in-line operating performance. PPOP de-grew 7% qoq due to AUM/NIM contraction. NIM decline could have been lower had BAF not prudently de-recognized interest capitalized during moratorium period. A sharper-than-expected opex decline mitigated the impact of reported lower NII on PPOP. While a large part of the decline in cost was attributable to lower loan originations, BAF has taken actions to optimize cost/defer expenditures. Moratorium book reduced to 15.7% of AUM from 27% of AUM as of 30th April. BAF made additional contingency provision (CP) of Rs14.5bn for COVID-19, taking overall CP buffer to Rs23.5bn (11% of moratorium book; including the ECL provisions at 14%). Based on management assessment of current situation and expected normalization of business through the year (without assuming a second national lockdown), the AUM growth is expected at 10-12% and credit cost is estimated at Rs60-63bn (~400 bps) for the current year.

Upgrading reco to ADD as BAF has demonstrated impressive earnings resilience amid unprecedented growth headwinds (RoA at 2.8% in Q4 FY20-Q1 FY21 with avg. 5% credit cost). A normal growth in FY22, propelled by deep distribution, innovative execution, large customer franchise and robust liquidity/capital position, to drive full normalization of profitability. Valuation will be anchored to this.

Shares of Bajaj Finance Limited was last trading in BSE at Rs.3292.9 as compared to the previous close of Rs. 3441.35. The total number of shares traded during the day was 1037897 in over 74379 trades.

The stock hit an intraday high of Rs. 3517.75 and intraday low of 3220. The net turnover during the day was Rs. 3518543244.

Source : Equity Bulls

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