Research

Bajaj Finance - Q4FY22 Result Update - Business Momentum Intact, Strong Quarter

Posted On : 2022-04-27 12:09:15( TIMEZONE : IST )

Mr. Akshay Ashok , Research Analyst - Insitutional Equities at Prabhudas Lilladher.

Quick Pointers:

- Gross NPA at 1.6% vs 1.7% (Q3FY22); asset quality back to pre-covid levels

BAF's Q4FY22 earnings were in line with our estimates (PAT at Rs24.19bn vs PLe: Rs27.7bn), led by robust NII traction and low provisions. Strong business momentum continued (loans grew 29% YoY/9% QoQ to Rs1974bn), benign funding costs CoF reduced to 6.7% in Q4FY22 vs 6.72% in Q3FY22 with improvement in asset quality (Gross NPA down to 1.6% from 1.7% in Q3FY22. The digital transformation journey is being closely watched out for and BAF has announced creation of digital web platform. Liquidity buffer of Rs 101 bn as of 31 March 2022 has normalized to pre-covid levels.

Given deep investments required to create Omni channel strategy (geo-expansion, app platform, web platform), BAF expects Opex-to-NII remain at elevated levels in FY23. Incorporating healthy business/NII traction into our estimates, our FY23 and FY24 EPS stand higher by 8%. Being valued as a profitable fintech lender, we value BAF at multiple of 8.7x Sep'23E ABV with TP increased at Rs 8,953 (Previous TP of Rs8,950). Maintain BUY.

- Improvement in asset quality, one large B2B commercial account slipped: BAF's asset quality exhibited improvement during Q4FY22 with (1) Decline in auto finance NPAs (GNPA % at 11.01% vs 11.04% (Q3FY22)) (2) ECL Stage 3 provs at 7.02bn vs Rs 10.5bn (Q3FY22) (3) largely stable PCR at 58% vs 56% (Q3FY22) (4) Stage 2+3 at 3.5% vs 4.6% (Q3FY22) (5) auto in yellow but composition of stage 1 improved to 85.19% from 82.86% in Q3FY22. With Covid behind us, we estimate credit costs at 2%/<2% and closer to 2% GNPAs over FY22-24.

- Healthy core performance; AUMs poised for 26% CAGR: For Q3FY22, BAF had reported healthy customer franchise growth (4%QoQ/19% YoY) at 57.57mn and AUMs at Rs1974bn with growth of 9%QoQ/29%YoY. On QoQ basis, AUM growth was driven by Consumer B2C business (7%+), Rural B2C (7%+) and Commercial businesses, excluding LAS (10%+) and Auto Finance (-4%) were a drag in 3QFY22. SME business/Mortgages rose strongly 8%/6% QoQ. Geographic expansion into newer states of improving to high GDP (North, east: UP, Bihar), launch of insurance, investment marketplace and reward management system in Q4 position BAF to maintain healthy growth traction ahead. Against this backdrop, we expect 26% AUM CAGR over FY22-24E.

- Rapid business amelioration through omni channel framework: BAF is seeing healthy traction of its omni channel strategy, In Q4, the Company booked 455K new EMI card customers digitally. Cards In Force (CIF) of EMI cards acquired digitally now stand at 1.8 MM. In Q4, CIF delivered 234K loans. The Company booked 526K new loans from B2B marketplace as against 393K new loans in Q3 FY22. EMI store currently hosts 25,972 SKUs across 27,449 merchants and 375 manufacturers as of 31 March 2022.

Shares of Bajaj Finance Limited was last trading in BSE at Rs. 7240.70 as compared to the previous close of Rs. 7009.05. The total number of shares traded during the day was 55451 in over 8287 trades.

The stock hit an intraday high of Rs. 7260.00 and intraday low of 7095.65. The net turnover during the day was Rs. 398311222.00.