JMFL

CMP: ₹3,301.2

Target: ₹3,600

Bucking the broader sector headwinds, Bajaj Finance (BAF) reported PAT of ₹1,180 crore, up 57 per cent y-o-y driven by its unparalleled customer acquisition prowess. During the quarter, the company added 2 million new customers, up 36 per cent y-o-y, with a 54 per cent y-o-y increase in new loans booked to 5.83 million. AUM growth continued to be spectacular at 41 per cent y-o-y driven by all the segments. Margins expanded by 73 bps y-o-y to 12 per cent in Q4 aided by pricing power.

Asset quality trends (ex-IL&FS) were stable q-o-q with GS3 ratio at 1.34 per cent in Q4 while coverage ratio remained comfortable at 65 per cent versus 66 per cent in Q3. Including IL&FS, the GS3 ratio was stable q-o-q at 1.54 per cent with coverage at 60 per cent. BAF remains well positioned to deliver earnings CAGR of 36 per cent over FY19-21E driven by a) strong customer acquisition engine; b) expanding rural footprint with a diversified product offering; c) scale-up of the housing finance subsidiary (targeting an 8-9 per cent market share from the current 1.5 per cent); d) robust fee income generation; and e) superior asset quality. With current leverage of 6.3x, we expect BAF to raise equity capital over the next 12 months (a 5 per cent dilution at CMP will be BV accretive by 32 per cent).

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