Index Details BAJAJ FINANCE LTD Result Update (PARENT BASIS): Q3 FY18 Stock Data Sector Finance (including NBFCs) BSE Code 500034 Face Value 2.00 52wk. High / Low (Rs.) 1989.00/1020.00 Volume (2wk. Avg.) 143000 Market Cap (Rs. in mn.) 936655.83 Annual Estimated Results(A*: Actual / E*: Estimated) Years (Rs. in mn) FY17A FY18E FY19E Net Sales 99773.60 132117.51 162504.54 EBITDA 66920.50 86785.66 106517.57 Net Profit 18365.50 25859.64 33156.31 EPS 33.40 44.98 57.67 P/E 48.78 36.22 28.25 Shareholding Pattern (%) As on Dec 2017 As on Sep 2017 Promoter 55.28 55.26 Public 44.44 44.43 Others 0.28 0.31 1 Year Comparative Graph BAJAJ FINANCE LTD S&P BSE SENSEX CMP: 1629.25 FEB 3 rd, 2018 Overweight SYNOPSIS ISIN: INE296A01024 Bajaj Finance Limited has emerged as one of the leading diversified NBFCs in the country and largest two wheeler lender in India focused on semi-urban & rural markets. Bajaj Finance has achieved a turnover of Rs. 35406.30 mn for Q3 FY18 as against Rs. 26882.30 mn in Q3 FY17, an increase of 31.71%. EBITDA was Rs. 23738.60 mn in Q3 FY18 as against Rs. 18479.20 mn in the corresponding period of last year, an increase of 28.46%. In Q3 FY18, PBT increased by 38.38% to Rs. 11762.20 mn from Rs. 8500.00 mn in Q3 FY17 In Q3 FY18, net profit increased by 38.00% to Rs. 7668.10 mn from Rs. 5556.50 mn in Q3 FY17. The company has reported an EPS of Rs. 13.34 for the 3 rd quarter of FY18 as against an EPS of Rs. 10.14 in Q3 FY17. New loans booked during Q3 FY18 up 58% to 4,535,818 from 2,879,595 in Q3 FY17. Consolidated AUM of Bajaj Finance as of 31 Dec 2017 up by 35% to Rs 779700 mn from Rs 576050 mn as of 31 Dec 2016. Customer franchise as of 31 Dec 2017 increased by 29% to 24.81 million from 19.18 million as of 31 Dec 2016. Gross NPA and Net NPA as of 31 Dec 2017 stood at 1.67% and 0.53% respectively. Capital adequacy ratio (including Tier-11 capital) as of 31 Dec 2017 stood at 24.84%. TheTier-1 capital stood at 19.60%. Net Sales and PAT of the company are expected to grow at a CAGR of 32% and 39% over 2016 to 2019E, respectively. PEER GROUPS CMP MARKET CAP EPS(TTM) P/E (X)(TTM) P/BV(X) DIVIDEND Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%) Bajaj Finance Ltd 1629.25 936655.83 41.31 39.44 9.27 180.00 Shriram Transport Finance Corp Ltd 1323.25 300222.60 69.33 19.09 2.66 100.00 Mahindra & Mahindra Financial Services 445.80 275399.60 12.99 34.32 3.90 120.00 Reliance Capital Ltd 437.35 110520.40 48.12 9.09 0.65 105.00
QUARTERLY HIGHLIGHTS (PARENT BASIS) Results updates- Q3 FY18, (Rs. in million) Dec-17 Dec-16 % Change Revenue 35406.30 26882.30 31.71% Net Profit 7668.10 5556.50 38.00% EPS 13.34 10.14 31.53% EBITDA 23738.60 18479.20 28.46% The company has achieved a turnover of Rs. 35406.30 million for the 3 rd quarter of the financial year 2017-18 as against Rs. 26882.30 million in the corresponding quarter of the previous year, an increase of 31.71%. EBITDA was Rs. 23738.60 million in Q3 FY18 as against Rs. 18479.20 million in the corresponding period of last year, an increase of 28.46%. In Q3 FY18, net profit increased by 38.00% to Rs. 7668.10 million from Rs. 5556.50 million in Q3 FY17. The company has reported an EPS of Rs. 13.34 for the 3 rd quarter of FY18 as against an EPS of Rs. 10.14 in Q3 FY17. Break up of Expenditure Value in Rs. Million Break up of Expenditure Q3 FY18 Q3 FY17 % Chng Employee benefits expense 3695.20 2525.20 46% Loan losses & provisions 2468.20 1757.80 40% Depreciation and amortization expense 267.60 177.20 51% Other expenses 5530.90 4237.10 31%
Key Performance Highlights New loans booked during Q3 FY18 up 58% to 4,535,818 from 2,879,595 in Q3 FY17. New loans booked during 9M FY18 have crossed 10 million in numbers. Assets under Management (AUM) as of 31 Dec 2017 increased by 33% to Rs 763840 mn from Rs 576050 mn as of 31 Dec 2016. Bajaj Housing Finance Limited (BHFL), a 100% housing finance subsidiary of Bajaj Finance, which started its operations in July 2017 has become fully operational in the current quarter. Its AUM as of 31 Dec 2017 stood at Rs 15860 mn. Consolidated AUM of Bajaj Finance as of 31 Dec 2017 up by 35% to Rs 779700 mn from Rs 576050 mn as of 31 Dec 2016. Customer franchise as of 31 Dec 2017 increased by 29% to 24.81 million from 19.18 million as of 31 Dec 2016. Loan losses and provisions for Q3 FY18 were Rs 2470 mn as against Rs 1760 mn in Q3 FY17. Gross NPA and Net NPA as of 31 Dec 2017 stood at 1.67% and 0.53% respectively. The provisioning coverage ratio stood at 68% as of 31 Dec 2017. The Company continues to provide for loan losses in excess of RBI requirements. As required by RBI guidelines, the Company has moved its NPA recognition policy from 4 months overdue to 3 months overdue in this financial year. The comparable Gross and Net NPA on 4 months overdue stood at 1.43% and 0.41% respectively as against 1.47% and 0.39% respectively as of 31 Dec 2016. Capital adequacy ratio (including Tier -11 capital) as of 31 Dec 2017 stood at 24.84%. TheTier-1 capital stood at 19.60%. Deposit book stood at Rs 64580 mn as of 31 Dec 2017- at 11% of BFL's overall borrowings book. COMPANY PROFILE Bajaj Finance Limited (BFL) is an India-based non-banking finance company engaged in lending and allied activities. The Company is engaged primarily in the business of financing. BFL focuses on six business verticals: (i) Consumer Lending, (ii) SME Lending, (iii) Commercial Lending, (iv) Rural Lending, (v) Deposits, and (vi) Partnerships and Services. The Company's product suite includes two wheeler and three wheeler, consumer durables, lifestyle products, personal loans cross-sell, salaried personal loans, co-branded credit cards, loan against property, lease rental discounting, business and professional loans, infrastructure finance, construction equipment, life insurance distribution, general insurance distribution, credit rating distribution and property fitness reports.
Consumer business Two wheeler financing business contributed to 46% of Bajaj Auto s domestic two wheeler sales in Q3 FY18 and disbursed 214K accounts. Three wheeler financing business contributed to 31% of Bajaj Auto s three wheeler sales in Q3 FY18 and disbursed 34K accounts. Present in 529 locations with 46,000+ active distribution point of sale Largest consumer electronics, digital products & furniture lender in India Amongst the largest personal loan lenders in India EMI Card franchise crossed 11.4 MM cards (CIF) Bajaj Finance Limited and RBL Bank co-branded credit card CIF stood at 255 K as of 31 Dec 2017 Amongst the largest new loans acquirers in India (4.53 MM in Q3 FY18) Rural business Highly diversified lender in the rural locations offering 9 loan products in consumer and RSME business categories with a unique hub and spoke business model Geographic presence across 588 towns and villages with retail presence across 7,200+ stores
FINANCIAL HIGHLIGHT (PARENT BASIS) (A*- Actual, E* -Estimations & Rs. In Millions) Balance Sheet as of March 31, 2016-2019E SOURCES OF FUNDS FY16A FY17A FY18E FY19E Shareholder's Funds Share Capital 535.50 1093.70 1149.80 1149.80 Reserves and Surplus 72710.60 94909.40 121391.34 154547.64 1. Sub Total - Net worth 73246.10 96003.10 122541.14 155697.44 2. Money received against share warrants 1020.30 0.00 0.00 0.00 Non Current Liabilities Long Term Borrowings 252869.70 331159.60 389443.69 440071.37 Other Long term Liabilities 4474.00 4848.70 5226.90 5645.05 Long Term Provisions 2429.40 3622.10 4165.42 4831.88 3. Sub Total - Non Current Liabilities 259773.10 339630.40 398836.00 450548.30 Current Liabilities Current maturities of long-term borrowings 60992.40 72112.70 60574.67 55122.95 Short term borrowings 56384.90 89224.20 96362.14 105034.73 Trade Payables 3349.10 5288.10 7509.10 9161.10 Other Current Liabilities 8546.50 25659.80 50395.85 66018.56 Short Term Provisions 6417.50 9327.30 12405.31 15382.58 4. Sub Total - Current Liabilities 135690.40 201612.10 227247.06 250719.92 Total Liabilities (1+2+3+4) 469729.90 637245.60 748624.20 856965.67 APPLICATION OF FUNDS Non-Current Assets Fixed Assets Tangible assets 2429.50 2859.00 3230.67 3682.96 Intangible assets 440.50 752.30 880.19 985.81 a) Sub Total - Fixed Assets 2870.00 3611.30 4110.86 4668.78 b) Non-current investments 4851.50 10903.00 12211.36 13676.72 c) Deferred Tax assets 2800.40 3690.70 4465.75 5180.27 d) Receivables under financing activity 247785.50 320281.00 379212.70 439886.74 e) Long Term Loans and Advances 997.90 598.60 838.04 988.89 1. Sub Total - Non Current Assets 259305.30 339084.60 400838.71 464401.39 Current Assets Current Investment 5489.20 29844.00 27754.92 28865.12 Receivables under financing activity 184936.80 256546.30 303153.42 343688.28 Cash and Bank Balances 13291.50 3565.20 5739.97 6773.17 Short-terms loans & advances 4588.90 4967.90 5762.76 6627.18 Other current assets 2118.20 3237.60 5374.42 6610.53 2. Sub Total - Current Assets 210424.60 298161.00 347785.49 392564.27 Total Assets (1+2) 469729.90 637245.60 748624.20 856965.67
Annual Profit & Loss Statement for the period of 2016 to 2019E Value(Rs.in.mn) FY16A FY17A FY18E FY19E Description 12m 12m 12m 12m Net Sales 73043.10 99773.60 132117.51 162504.54 Other Income 791.70 259.50 359.02 402.10 Total Income 73834.80 100033.10 132476.53 162906.64 Expenditure -24357.10-33112.60-45690.87-56389.07 Operating Profit 49477.70 66920.50 86785.66 106517.57 Interest -29268.60-38033.70-46056.42-54346.57 Gross profit 20209.10 28886.80 40729.24 52171.00 Depreciation -563.40-711.60-1016.11-1239.65 Profit Before Tax 19645.70 28175.20 39713.13 50931.34 Tax -6860.50-9809.70-13853.50-17775.04 Net Profit 12785.20 18365.50 25859.64 33156.31 Equity capital 538.70 1099.80 1149.80 1149.80 Reserves 73159.30 95531.70 121391.34 154547.64 Face value 10.00 2.00 2.00 2.00 EPS 237.33 33.40 44.98 57.67 Quarterly Profit & Loss Statement for the period of 30 th June, 2017 to 31 st Mar, 2018E Value(Rs.in.mn) 30-Jun-17 30-Sep-17 31-Dec-17 31-Mar-18E Description 3m 3m 3m 3m Net sales 31504.70 30862.40 35406.30 34344.11 Other income 140.40 160.90 26.60 31.12 Total Income 31645.10 31023.30 35432.90 34375.23 Expenditure -11392.50-10789.70-11694.30-11814.37 Operating profit 20252.60 20233.60 23738.60 22560.86 Interest -10779.50-11437.80-11708.80-12130.32 Gross profit 9473.10 8795.80 12029.80 10430.54 Depreciation -218.80-240.70-267.60-289.01 Profit Before Tax 9254.30 8555.10 11762.20 10141.53 Tax -3233.90-2986.10-4094.10-3539.40 Net Profit 6020.40 5569.00 7668.10 6602.14 Equity capital 1099.80 1149.50 1149.80 1149.80 Face value 2.00 2.00 2.00 2.00 EPS 10.95 9.69 13.34 11.48
Ratio Analysis Particulars FY16A FY17A FY18E FY19E EPS (Rs.) 237.33 33.40 44.98 57.67 EBITDA Margin (%) 67.74% 67.07% 65.69% 65.55% PBT Margin (%) 26.90% 28.24% 30.06% 31.34% PAT Margin (%) 17.50% 18.41% 19.57% 20.40% P/E Ratio (x) 6.86 48.78 36.22 28.25 ROE (%) 17.35% 19.01% 21.10% 21.30% ROCE (%) 11.27% 11.48% 13.13% 14.25% Debt Equity Ratio 5.02 5.10 4.46 3.86 EV/EBITDA (x) 8.88 20.25 16.70 14.09 Book Value (Rs.) 1368.07 175.73 213.15 270.83 P/BV 1.19 9.27 7.64 6.02 Charts
OUTLOOK AND CONCLUSION At the current market price of Rs. 1629.25, the stock P/E ratio is at 36.22 x FY18E and 28.25 x FY19E respectively. Earning per share (EPS) of the company for the earnings for FY18E and FY19E is seen at Rs. 44.98 and Rs. 57.67 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 32% and 39% over 2016 to 2019E respectively. On the basis of EV/EBITDA, the stock trades at 16.70 x for FY18E and 14.09 x for FY19E. Price to Book Value of the stock is expected to be at 7.64 x and 6.02 x for FY18E and FY19E respectively. Hence, we say that, we are Overweight in this particular scrip for Medium to Long term investment. INDUSTRY OVERVIEW Financial year 2016-17 (FY2017) began on a positive note. India had closed FY2016 with growth in real GDP of 7.9% and a growth in gross value added (GVA) of 7.8%. Despite two disconcerting facts - namely, the high level and proportion of the banking sector s non-performing assets coupled with a muted growth in bank credit - there were expectations of India achieving a GDP growth rate somewhere between 7.5% and 8% in FY2017. Unfortunately, that has not occurred. The second advance estimates of national income forecast by the Central Statistics Office released on 28 February 2017 suggest a real GDP growth of 7.1% for FY2017; and a real gross value added (GVA) growth of 6.7%. Both estimates are significantly lower than what the economy achieved in the previous year. On 8 November 2016, the Government announced demonetization of Rs 500 and Rs 1,000 banknotes, which represented 86% of the currency in circulation. Contemporary evidence suggested significant disruption arising out of unprecedented
cash constraints throughout the economy. For lending institutions in particular, the impact of lower collection efficiencies was quite severe, and resulted in poorer credit growth. Growth in bank credit continued to be subdued. Thanks to the overhang of NPAs, it grew only by 5.2% in FY2017 versus 10.2% in the previous year. On the liability side, demonetization led to an unnatural growth in bank deposits, which increased by 11.9% in FY2017 compared to 9.1% in FY2016. Awash with post-demonetization liquidity, the banks significantly reduced their incremental marginal cost based lending rates in January 2017. This has created a potentially alarming situation in the banking sector, especially for the public sector banks. On the one hand, these institutions remain saddled with high levels of NPAs from which they earn little or no returns and need quarterly provisioning to the detriment of their profits. On the other hand, extra liquidity has forced a reduction in lending rates which, in turn, reduced the net income margin from new lending. Without exaggeration, it is fair to say that the state of most banks continue to be alarming. How FY2018 plays out depends upon two factors: the investment appetite of the country and a perennial annual variable called the monsoons. Regarding the former, there is still no sign of even a modest upsurge in private investments as firms continue to leverage efficiency improvements and squeeze the best out of existing capacities. As far as the latter is concerned, the India Meteorological Department has come out with an initial forecast of a normal monsoon. That remains to be seen. It will only be after August 2017. On the positive side, the roll out of the nation-wide Goods and Service Tax (GST) in FY2018 ought to aid growth. It is only in FY2019 that the country will begin to see the overall benefits of this key economic reform. Equally, the Insolvency and Bankruptcy code ought to finally create a market for stressed assets; and, all other things being equal, reduced bank lending rates should make borrowing more attractive than before. Non-Banking Finance Companies (NBFCs) continued to grow their share in the financial services industry. As per data published by RBI in its Financial Stability Report of December 2016, NBFCs have outperformed Scheduled Commercial Banks (SCBs) on growth in advances and in asset quality.
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