About the Company

Bajaj Finance is engaged in the business of lending. BFL has a diversified lending portfolio across retail, SME and commercial customers with a significant presence in urban and rural India. It also accepts public and corporate deposits and offers variety of financial services products to its customers.

 

Q2 FY21 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q2FY21 Q2FY20 YoY % Q1FY21 QoQ % H1FY21 H1FY20 YoY
Sales 5790 5698 1.61% 5902 -1.90% 11692 11003 6.26%
PBT 1186 1860 -36.24% 1184 0.17% 2370 3604 -34.24%
PAT 877 1377 -36.31% 870 0.80% 1746 2501 -30.19%

Consolidated Financials (In Crs)
Q2FY21 Q2FY20 YoY % Q1FY21 QoQ % H1FY21 H1FY20 YoY
Sales 6523 6323 3.16% 6650 -1.91% 13173 12131 8.59%
PBT 1305 2022 -35.46% 1310 -0.38% 2615 3874 -32.50%
PAT 965 1506 -35.92% 962 0.31% 1927 2702 -28.68%

Detailed Results

  1. The company had a flat Q2 with consolidated revenue growth of 3% YoY. PAT was down 36% YoY in Q2.
  2. The company has made an extra contingent expected loss provision of Rs 1450 Cr on account of COVID-19. This brings the total provisioning up to Rs 2350 Cr.
  3. Consolidated AUM for the company has grown 1% YoY. The Company estimates AUM growth for FY21 at 6-7%.
  4. The Company booked 3.62 MM new loans during Q2 FY21 as against 6.47 MM in Q2 FY20.
  5. In Sep ’20, urban consumption businesses (B2B) were at 72%, rural consumption business (B2B) at 91%, credit card origination was at 73%, e-commerce was at 75% and auto finance business was at 54% of last year’s volumes.
  6. In Sep ’20, total loan disbursements were at 62% of last year’s volumes.
  7. The Company acquired 1.22 MM new customers in the current quarter. Total customer franchise stood at 44.11 MM as of 30 September 2020, a growth of 14% YoY. The cross-sell franchise stood at 23.87 MM.
  8. Existing customers contributed to 66% of new loans booked during Q2 FY21.
  9. In Q2 FY21, the Company has converted ₹1,750 crores of term loans into Flexi loans to provide customers the flexibility of lower repayment and higher prepayment.
  10. As of 20 October 2020, the Company had a consolidated liquidity buffer of ₹24,775 Cr and SLR investments of Rs. 2,582 Cr.
  11. Deposits book stood at ₹21,669 Cr, a growth of 23% YoY. It accounted for 17% of total assets.
  12. The Retail: Corporate mix stood at 75: 25 in Q2 FY21 as against 56: 44 in Q2FY20.
  13. NII grew by 4% but opex declined by 16%. Total Opex to net interest income came down to 27.8% in Q2FY21 vs 34.6% in Q2FY20.
  14. During the quarter, the Company has further increased its provisioning coverage for stage 1 and 2 assets by ₹1,370 Cr taking it to ₹5,099 Cr as of 30 September 2020.
  15. Against 15.7% of the moratorium book in June 2020, stage 2 (1 and 2 installments overdue) book as of 30 September 2020 stood at 8.0% versus 2.3% in Q2FY20.
  16. The Company has taken a loan loss provision of ₹3,386 Cr against its credit cost estimate of ₹6,000-6,300 Cr for FY21.
  17. Consolidated PBT for Q2 contracted by 35% YoY due to additional provisions of Rs 1370 Cr.
  18. CRAR remains at 26.6% while Tier-1 capital was at 23%.
  19. GNPA was at 1.03% while NNPA was at 0.37%. The company also maintained a PCR of 64%.
  20. The breakup of growth in the consolidated loan book is as follows:
    1. Auto Finance: 7% YoY
    2. Sales Finance: -42% YoY
    3. Consumer B2C: 5% YoY
    4. Rural Sales Finance: -19% YoY
    5. Rural B2C: 15% YoY
    6. SME Lending: 2% YoY
    7. Securities Lending: -26% YoY
    8. Commercial Lending: 5% YoY
    9. Mortgage lending: 14% YoY
  21. Bajaj Housing Finance had a mixed quarter with AUM growth of 30% YoY and a decline in net interest income of 6% YoY. PAT declined 36% YoY for this subsidiary. The entity’s Opex to NII improved to 28.2% in Q2FY21 vs 33.3% in Q2FY20.
  22. Bajaj Financial Securities Ltd (BFinsec) made a net profit of ₹2 Cr in Q2 FY21.

Investor Conference Call Highlights

  1. Opex for Q2 was down Rs 224 Cr out of which Rs 120 Cr is permanent cost reduction.
  2. The management wants to act cautiously in current times and is willing to front-load losses and backload income so that once normalcy comes back, the company will have additional momentum to grow.
  3. Around 70% of the total OEM subvention share used to be Bajaj Finance. This number has gone down to 60-63% but is expected to rise back to previous levels in the near future.
  4. The company is focussing on a primary transformation and has created a frame called 3-in-1 where fundamentally in 3 clicks, a customer should be able to do away with financial service products across loan, insurance, mutual fund, cards, etc.
  5. Total outstanding Flexi loans is around Rs 43,000 Cr. This is across mortgages to personal loans to gold loans, each part of the company portfolio is covered in this figure. Flexi loans are offered only in B2C loans.
  6. BHFL is focused on going back to pre-COVID growth levels by March-April 2021. It currently relies entirely on bank funding and once it completes 3 years of existence, it will have access to money market funding which should aid the entity in its growth quest.
  7. The management expects Opex to NII to go above 30% for the rest of the year ahead but overall Opex to NII for FY21 should remain below 30%.
  8. The company is still waiting for clarification from the Govt of India on the issue of interest on interest and how to handle it going forward.
  9. The company aims to become among the top 3,4 in the country in the credit card business. It already has a strategic and important partnership with RBL and may require an additional such partnership to attain its goals.
  10. The situation in 2 wheeler and 3 wheeler loans is very different as 3 wheelers customers will only see demand coming back once point-to-point transport necessity comes back. Till then, the company has no option but to provide restructuring options to those customers.
  11. The cross-sell opportunity for the 23 million is available for card business, mortgage business, personal loan business, insurance business, all businesses. It is harder to estimate the opportunity for just a few segments alone.
  12. Out of the 23 million, the company is ready to give personal loans to 11.2 million.
  13. The management firmly believes that as the franchise grows, e-commerce will also grow along with it.
  14. On a rolling basis, annually, 10% of eligible customers land up taking personal loans. This number is expected to multiply as 3-in-1 financial services come into place.
  15. The management states that fresh customers default at a much lower rate as they mature into the cycle, depending on what type of loan their bounce rate increases.

Analyst’s View

Bajaj Finance is one of the fastest-growing NBFCs in India today. The company has done well to bounce back quickly from the post-COVID situation and has seen good traction across most categories. The company has done well to convert many of its term loans to Flexi loans, increasing customer convenience, and earning fee income along the way. It has also remained conservative by taking the decision to front-load losses and backload income. It remains to be seen whether there are any further disruptions in place from the evolving situation from COVID-19 in India and how it will impact the company’s operations. Nonetheless, given the company’s strong market position, the management drive to derive new opportunities through the use of data and technology, and its strong balance sheet position, Bajaj Finance remains a pivotal NBFC stock for all Indian investors.

 


 

Q1 FY21 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q1FY21 Q1FY20 YoY % Q4FY20 QoQ %
Sales 5901 5302 11.30% 6511 -9.37%
PBT 1184 1744 -32.11% 1205 -1.74%
PAT 870 1125 -22.67% 892 -2.47%

 

Consolidated Financials (In Crs)
Q1FY21 Q1FY20 YoY % Q4FY20 QoQ %
Sales 6650 5808 14.50% 7231 -8.03%
PBT 1310 1851 -29.23% 1278 2.50%
PAT 962 1195 -19.50% 948 1.48%


Detailed Results

    1. The company had stable Q1 with consolidated revenue growth of 14.5% YoY. PAT was down 19.5% YoY in Q1.
    2. The company has made an extra contingent expected loss provision of Rs 1450 Cr on account of COVID-19. This brings the total provisioning up to Rs 2350 Cr.
    3. Consolidated AUM for the company has grown 7% YoY due to the lockdown which was in effect till 10th Currently around 86 locations remain closed for the company which accounts for 15% of the business.
    4. The company expects 75+ cities should revert to pre-COVID volumes by October, 40-75 Cities by end November, 10-40 cities by January, and the top 10 cities by March. Based on this assessment, the company estimates the AUM growth of 10-12% in FY21.
    5. In Q1, the company switched Rs 8600 Cr of term loans to Flexi loans for some of its customers with no overdue and good repayment track record.
    6. The company acquired 0.53 million new customers in Q1 showcasing a YoY growth of 16%.
    7. CRAR was at 26.4% with Tier-I capital at 22.6%.
    8. The company’s surplus liquidity as of 20th July 2020 was at Rs 20,590 Cr.
    9. Deposits book rose 33% YoY to Rs 20061 Cr. The retail to corporate mix stands at 70:30.
    10. Net interest income for Q4 was up 38% YoY to Rs 4684 Cr. The same figure rose 42% YoY for FY20.
    11. Total Opex to net interest income came down to 27.9% in Q1FY21 vs 35% in Q1FY20. Total Opex fell 11% YoY and 20% QoQ.
    12. Consolidated moratorium book was reduced to Rs 21705 Cr (15.7%) on 30th June 2020 from Rs 38599 Cr (27%) on 30th April 2020 due to a reduction in bounce rate coupled with improved collection efficiencies.
    13. GNPA was at 1.4% while NNPA was at 0.5%. The company also maintained a PCR of 65%.
    14. The breakup of growth in consolidated loan book is as follows:
      1. Auto Finance: 17% YoY
      2. Sales Finance: -34% YoY
      3. Consumer B2C: 17% YoY
      4. Rural Lending: 19% YoY
      5. SME Lending: 12% YoY
      6. Securities Lending: -56% YoY
      7. Commercial Lending: 3% YoY
      8. Mortgage lending: 23% YoY
    15. Bajaj Housing Finance had a good quarter with AUM growth of 52% YoY and growth in net interest income of 23% YoY. PAT growth for this subsidiary was at 31% YoY. The entity’s Opex to NII improved to 30.4% in Q1FY21 vs 41.4% in Q1FY20.

Investor Conference Call Highlights

  1. S&P Global downgraded the company’s long-term issuer rating on account of a sectoral downgrade due to COVID-19.
  2. The company has decided to reverse interest income of Rs 220 Cr on the ongoing moratorium book.
  3. The company got Rs 147 Cr from fee income from conversion to Flexi loans mentioned above.
  4. Keeping in mind that the ongoing pandemic is one that no one has seen before, the management wants to stay conservative in its stance and thus the company has decided to account for greater provision than required.
  5. The conversion to Flexi loans was not to mitigate the impact of the moratorium as around Rs 500 Cr of conversions were from loans that didn’t go to the moratorium. The management states that the conversion option was given mainly to keeping customer convenience in mind.
  6. The gold loan business is operating in 400 cities and is aggregating Rs 70 to 80 Cr of assets per month.
  7. The company has added 1500 new collection officers to its force.
  8. The company has kept provisioning on the moratorium AUM in auto finance book at 11.8% vs an average of 14% across other divisions. This is mainly because the company expects higher residual value due to BSVI conversion resulting in prices going up for second-hand assets.
  9. The management has clarified that the amount of Rs 21700 Cr of loans that are under a moratorium for June have not paid their EMIs for June. The rest of the customers have all paid up.

Analyst’s View

Bajaj Finance is one of the fastest-growing NBFCs in India today. The company has done well to bounce back quickly from in the post-COVID situation and has seen good traction across most categories. The company has done well to convert many of its term loans to Flexi loans, increasing customer convenience, and earning fee income along the way. It has also remained conservative by increasing its COVID provisioning to Rs 2350 Cr. It remains to be seen whether there are any further disruptions in place from the evolving situation from COVID-19 in India and how it will impact the company’s operations. Nonetheless, given the company’s strong market position, the management drive to derive new opportunities through the use of data and technology, and its strong balance sheet position, Bajaj Finance remains a pivotal NBFC stock for all Indian investors.


 

Q4 2020 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q4FY20 Q4FY19 YoY % Q3FY20 QoQ % FY20 FY19 YoY%
Sales 6511 4879 33.45% 6312 3.15% 23823 17386 37.02%
PBT 1205 1726 -30.19% 1999 -39.72% 6808 6035 12.81%
PAT 892 1114 -19.93% 1488 -40.05% 4881 3890 25.48%

 

Consolidated Financials (In Crs)
Q4FY20 Q4FY19 YoY % Q3FY20 QoQ % FY20 FY19 YoY%
Sales 7227 5294 36.51% 7019 2.96% 26374 18487 42.66%
PBT 1278 1812 -29.47% 2170 -41.11% 7322 6179 18.50%
PAT 948 1176 -19.39% 1614 -41.26% 5264 3995 31.76%


Detailed Results

    1. The company had a good Q4 with consolidated revenue growth of 36.5% YoY. PAT was down 19% YoY in Q4 mainly on account of extra provision of Rs 900 Cr for COVID-19. Adjusting for this provision, PAT growth for Q4 would be up 38% YoY.
    2. FY20 was a good year for the company with revenue growth of 43% YoY and PAT growth of almost 32% YoY.
    3. Consolidated AUM for the company has grown 27% YoY. Without the 10 days of inactivity in Q4 due to lockdown, AUM growth would have been around 31% YoY.
    4. CRAR was at 25% which is amongst the highest in NBFCs in India.
    5. The company’s surplus liquidity as of 15th May 2020 was at Rs 20,900 Cr.
    6. New loans booked in Q4 rose 3% YoY only due to low acquisition in the last 10 days due to lockdown.
    7. Net interest income for Q4 was up 38% YoY to Rs 4684 Cr. The same figure rose 42% YoY for FY20.
    8. Total Opex to net interest income came down to 31% in Q4FY20 vs 34.4% in Q4FY19. The same figure was at 33.5% for FY20 vs 35.3% for FY19.
    9. GNPA was at 1.61% while NNPA was at 0.65%. The company also maintained a PCR of 60%.
    10. The company gave out an interim dividend of Rs 10 per share in February.
    11. The breakup of growth in consolidated loan book is as follows:
      1. Consumer B2B: 17% YoY
      2. Consumer B2C: 36% YoY
      3. Rural Lending: 44% YoY
      4. SME Lending: 23% YoY
      5. Commercial Lending: -7% YoY
      6. Mortgage lending: 36% YoY
    12. The deposits book saw a growth of 62% YoY in FY20.
    13. In the standalone business, AUM grew 18% YoY while net interest income for FY20 grew 39% YoY.
    14. Bajaj Housing Finance had a stellar year with AUM growth of 86% YoY and growth in net interest income of 119% YoY. PAT growth for this subsidiary was at 283% YoY. The entity maintained a CAR of 25.15%.
    15. The company is said to have tightened underwriting and LTV norms across all businesses till July.
    16. The company has resumed B2B lending in green and orange zones and has refrained from lending in any other category until the lockdown is lifted.
    17. B2B in rural has also been opened. Rural B2c is expected to be opened soon.
    18. The mix of retail to corporate in the company’s deposit book is 67:33. The company has reduced its retail deposit rate by 25 bps in May.
    19. The total provisioning in Q4 was at Rs 1419 Cr out of which Rs 129 Cr was for recalibration of ECL model, Rs 900 Cr for effects of COVID on overall business and Rs 390 Cr for 2 large identified stressed accounts.
    20. The company has offered moratorium to all of its non-NPA customers and has taken the decision of not providing moratorium to any customers that are more than 60 days overdue.
    21. ROA for Q4 was at 0.7% while ROE was at 2.9%. removing the impact of COVID provision, ROA and ROE would be 1.2% and 5% respectively.
    22. The company added 213 new locations in Q4 bringing its total up to 2392.
    23. The book value of the company share was at Rs 538 per share.

Investor Conference Call Highlights

  1. The company has frozen all hires until September 2020. The management has instituted measures to reduce fixed Opex by 22-24% in the last 3 months. This also includes a freeze in branch expansion.
  2. The management has stated that although growth is a primary focus for the company, it will not be hastily chasing growth even in tough conditions like at present. Instead, it will try and stay prudent and get ready to resume its high growth trajectory as soon as possible.
  3. The management has stated that although some amount of recovery can be expected from the stressed assets of ILFS and Karvy, the company has decided to write it off so that there isn’t much uncertainty arising from these accounts. Furthermore, whatever recovery comes from these accounts, it can be used to boost COVID provisions or even add on profits at a later date.
  4. The management has clarified that the company will indeed roll out its systematic deposit plan product on 1st It was supposed to be released earlier but got delayed due to the lockdown.
  5. The company has indeed formed various scenarios for estimating the impact on credit costs from COVID-19 and these scenarios are not fixed and are dependent on various factors like whether RBI extends the loan moratorium (which it did a week after this call was done). Thus the management has refrained from providing any specific guidance on how it expects credit costs to go in the future.
  6. The management has stated that there should no impact on the company’s books due to the suspension of the IBC process as the company does not have any clients under this.
  7. The management has stated that the company should be able to ensure robust fee income by utilizing cross-sell opportunities or by creating new products through data mining. The company has in fact developed its etch infrastructure to be able to allow for multi-card infrastructure so that it can facilitate different cards for different cards to be used for different purposes for the same customer. Although this has not been fully developed yet, there remains significant room for growth for the company using this mechanism.
  8. The management has stated that it is not correct to compare repayment behaviour for banks and non-banks as the customer set, behavioural characteristics, and nature of these repayments may not be comparable. Furthermore, these data vary a lot across all the players in the banking industry so it cannot be used as representative for such comparisons.
  9. The management has stated that it will not comment on behavioural change from COVID-19 as it is still too early to gauge customer preferences when the lockdown has not been fully lifted yet and things have not come to normalcy.
  10. The management has stated that it will not be focussing on disbursement growth right now. The fundamental focus for the company will be how to reopen its entire branch network properly and bring back business to the pre-COVID level safely while managing the risks arising from the new business and economic environment.
  11. The management reiterates that the primary focus areas for the company immediately post COVID will be managing the Balance Sheet, preserving capital, managing Opex and boosting collections. As long as the company can stay resilient in tough times, it can resume its growth momentum once things come back to normal.
  12. In the auto finance business, PCR is at 54%. The management made the decision to write off NPAs directly instead or carrying it on the books in 2 and 3 wheeler segment because there are higher delinquencies in this segment. Thus PCR comes down automatically.
  13. The cost of funds for the company in Q4 was at 8.76% with liquidity drag.
  14. The company already has a proprietary structure where the company works with an agency and fully outsources the collection operations. Under this structure, the company has a bottom-up structure where the division of collection codes in each geography depends on the characteristics of that particular area. For example, Mumbai has more than 48 different codes which is greater than the number pf pin codes in the city. This model has worked well for the company and the company will build and enhance it further going forward.
  15. The company’s current CP book is less than Rs 2000 Cr. This represents an opportunity for the company to reduce the cost of funds by raising more funds through the short term CP route.
  16. The ECB borrowing issued by the company in April was for $75 million at a rate of 7.2%. It is a 3-year program that is fully hedged for both principal and interest.
  17. The management has stated that the company has provided adequate support for its collection agencies so that staffing requirements remain adequate and things can bounce back fast once the economy opens up again.
  18. The interest rate charged during the moratorium will be the same as specified in the customer statement.

Analyst’s View

Bajaj Finance is one of the fastest-growing NBFCs in India today. The company has done well to maintain its status as a growth company and has had a stellar year in FY20. But the economic shock and disruption from COVID-19 have forced the company to alter its path and focus on the balance sheet resilience and managing Opex while the economic environment remains tough. The company has indeed been agile and decisive to take quick decisions as to which businesses to open and which to keep on hold in the current environment. It remains to be seen what second-order effects will the COVID-19 disruption have on the NBFC space and how Bajaj Finance navigates through the trying times ahead. Nonetheless, given the company’s strong market position, the management drive to derive new opportunities through the use of data and technology, and its strong balance sheet position, Bajaj Finance remains a pivotal NBFC stock for all Indian investors.

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