Maintain BUY on Bajaj Finance - Bold on growth once again - HDFC Securities

Mr. Krishnan ASV, Institutional Research Analyst, HDFC Securities

BAF's P&L performance was below expectations on account of higher opex (employee expenses due to collection efforts etc.) and elevated LLPs (~3.4%) from accelerated write-offs. The company reported net AUM growth at pre- COVID levels amidst a quarterly customer acquisition run rate of ~2.2mn, suggesting that BAF is poised to deliver strong AUM growth going forward. With improving credit quality across segments (except 2/3 wheelers and B2C loans), the management is upbeat about portfolio growth driving operating leverage and profitability. Maintain BUY with revised TP of INR4,928.

Muted P&L performance: Bajaj Finance reported muted P&L performance (PPOP at ~11% below expectations) primarily on account of higher employee expenses. LLP provisions remained elevated at ~3.4% of AUM as the company took accelerated write-offs of COVID-related stress of INR15.3bn bringing its GNPA down to 1.79%. NIM on AUM has begun to inch up sequentially and is likely to reflate further with the reduction of surplus liquidity on the balance sheet.

Poised for strong AUM growth: AUM grew sequentially by 6.5% as the quarterly net AUM addition reached pre-COVID levels, alongside new customer acquisitions (19% YoY, 3% QoQ) at 2.2mn. With new initiatives around business transformation and a likely pick-up in economic activity, the management is upbeat about converging towards its long-term growth guidance in FY22. The company remains cautious in the Auto (2/3 wheeler) and Consumer B2C businesses based on portfolio behaviour.

Comfortable buffers to withstand second-wave impact: On the back of the prudent and accelerated write-offs during the quarter, we believe that BAF's loan book is poised to see limited incremental markdowns, driving normalised credit costs. We also expect normalization in opex-to-NIM metrics on the back of steady-state AUM growth. However, a protracted lockdown in key states or a nation-wide lockdown poses risks to earnings estimates. Maintain ADD with revised TP of INR4,928.

Shares of Bajaj Finance Limited was last trading in BSE at Rs.5279.15 as compared to the previous close of Rs. 4873.45. The total number of shares traded during the day was 540834 in over 60692 trades.

The stock hit an intraday high of Rs. 5307 and intraday low of 4920. The net turnover during the day was Rs. 2790401265.

Source : Equity Bulls

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