COMPANY UPDATE Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 RETAIL EQUITY RESEARCH Bajaj Finance Limited (BFL) NBFC BSE CODE: 500034 NSE CODE: BAJFINANCE Bloomberg CODE: BAF:IN SENSEX: 33,034 BUY Rating as per Large Cap 12 months investment period CMP Rs. 1730 TARGET Rs. 2000 RETURN 16% 13 th November, 2017 Stellar performance continues Bajaj Finance Limited (BFL) is one of the leading non-banking financial companies (NBFC) in India with presence across 471 consumer branches and 560 rural locations with over 51,400 distribution points. AUM continued to grow at a robust pace of 38% YoY mainly led by the consumer ( 42% YoY) and rural ( 137% YoY) businesses. Net interest income (NII) showed strong traction with 41% YoY increase on the back of 19 bps YoY improvement in NIM to 11.0%. We expect NII and PAT to grow at a robust CAGR of 39% and 36% CAGR, respectively over FY17-19E led by strong AUM growth (35% CAGR) along with stable asset quality across segments. Being market leader in consumer durables and lifestyle financing, BFL will continue to maintain its robust growth momentum. Hence, we maintain BUY rating on the stock with a revised upward TP of Rs2,000 (P/ABV of 6.0x for FY19E). Robust AUM accretion backed by consumer and rural portfolios Assets under management (AUM) continued to grow at a robust pace of 38% YoY mainly led by 42% YoY growth in consumer business. Notably, it contributed ~70% of the incremental growth in Q2FY18. As a result, the share of consumer business in total AUM increased by 120 bps YoY to 47%. Within the consumer segment, the company saw strong disbursements growth across all categories except 2W & 3W finance ( 4% YoY). Customer acquisition also remained strong as the company acquired 1.3 mn customers (60% YoY) in Q2FY18. Commercial portfolio (12% of the total AUM) grew by 57% YoY on the back of 74% YoY growth in loan against securities. Rural business also continued with its strong growth momentum ( 137% YoY) albeit on a smaller base. Rural portfolio now forms 6% of the total AUM as against 4% in Q2FY17. However, SME business (13% of the total AUM) grew at a much slower pace of 15% YoY as the company is taking a cautious stance on the SME lending segment due to its hyper-competitive nature in the current environment. Going ahead, we expect AUM to grow at 35% CAGR over FY17-19E driven by the consumer financing segment (43% CAGR). Strong operating performance NII showed robust traction with 41% YoY increase (in line with our expectation) in Q2FY18 on the back of 19bps YoY improvement in net interest margin (NIM) to 11.0%. Going forward, we expect NIM to improve further (~12.0% for FY18E) as the full benefit of recent fund-raising kicks in. Operating expenses increased by 48% YoY as the company continued to invest heavily in developing technological capabilities, improving data analytics and increasing physical presence. Provisions also increased at a faster pace of 38% YoY as the management made an accelerated provision of Rs300mn against some of the stressed accounts. Net profit increased by 37% YoY. Going forward, we expect net profit to grow at a CAGR of 36% over FY17-19E on the back of strong loan growth coupled with higher NIM. Pristine asset quality BFL continues to maintain one of the best asset quality among the peer group. Despite migration to 90-dpd (days past due) non-performing assets (NPA) recognition, asset quality remained largely stable sequentially. Gross/Net NPA ratios increased by 2/2 bps QoQ to 1.7%/0.5%. Provision coverage ratio (PCR) also improved by 100 bps to 70.0%. Going forward, we expect asset quality to remain stable and project Gross/Net NPA to stand at 1.8%/0.4% by FY19E. Recent capital infusion to support robust growth momentum BFL raised Rs4,500cr of equity capital through QIP route in Q2FY18 which helped it to boost capital adequacy ratio (CAR) by 527 bps QoQ to 25.4% with Tier I ratio of 19.9% ( 566 bps QoQ). We expect the recent equity capital infusion will provide enough room to the company to grow at a robust pace for the next few years. Outlook & Valuation BFL is the largest consumer durables and lifestyle financier in the country and has been continuously gaining market share in these businesses. We believe that it will help the company to maintain its robust growth momentum over the near to medium term. Hence, we continue to maintain a BUY rating on the stock with a revised upward target price (TP) of Rs2,000 (P/ABV of 6.0x for FY19E). Company Data Market Cap (cr) Rs. 99,754 Outstanding Shares (cr) 57.7 Free Float 42% Dividend Yield 0.2 52 week high Rs. 1,989 52 week low Rs. 762 6m average volume (cr) 0.1 Beta 0.9 Face value Rs. 2 Shareholding (%) Q4FY17 Q1FY18 Q2FY18 Promoters 57.9 57.9 57.9 FII s 19.3 18.6 18.6 MFs/Insti 5.4 5.9 5.9 Public 17.4 17.5 17.5 Others - - - Total 100.0 100.0 100.0 Price Performance 3 Month 6 Month 1 Year Absolute Return 1.9% 31.5% 101.7% Absolute Sensex 5.8% 9.4% 23.2% Relative Return* -3.9% 22.1% 78.5% *over or under performance to benchmark index 2250 1750 1250 750 BFL Sensex (rebased) Standalone (Rs. cr) FY17A FY18E FY19E Net Interest Income 6,174 8,573 11,612 Growth (%) 41% 39% 35% NIM (%) 11.8 12.1 12.2 Pre Pro Profit 3,636 5,112 6,907 Growth (%) 45% 41% 35% Adj. Net Profit 1,837 2,562 3,402 Growth (%) 44% 40% 33% Adj. EPS 33.6 44.6 59.2 Growth (%) 41% 33% 33% P/E 51.5 38.8 29.2 P/BV 9.9 6.1 5.1 P/ABV 10.1 6.2 5.2 RoE (%) 21.6 19.7 19.0 RoA (%) 3.3 3.5 3.4
Quarterly Financials (Standalone) Profit & Loss Account (Rs. cr) Q2FY18 Q2FY17 YoY Growth % Q1FY18 QoQ Growth % Interest Income 3,086 2,336 32.1 3,112 (0.8) Interest Expense 1,144 956 19.6 1,078 6.1 Net Interest Income 1,942 1,379 40.8 2,034 (4.5) Non-Interest Income 16 6 188.4 14 14.6 Total Net Income 1,959 1,385 41.4 2,048 (4.4) Operating Expenses 875 593 47.5 841 4.0 Employee Cost 336 213 57.8 308 9.1 Other Operating Exp. 539 380 41.8 533 1.1 Total Income 3,102 2,341 32.5 3,126 (0.8) Total Expenditure 2,019 1,549 30.3 1,919 5.2 Pre-Provisioning profit 1,083 792 36.8 1,207 (10.3) Provisions 228 165 37.7 282 (19.1) Profit Before Tax 856 626 36.6 925 (7.6) Tax 299 219 36.6 323 (7.7) Net Profit 557 408 36.6 602 (7.5) EPS - Diluted (Rs) 10.0 7.5 33.7 11.0 (9.2) Business Performance (Rs. cr) Q2FY18 Q2FY17 YoY Growth % Q1FY18 QoQ Growth % AUM 72,139 52,332 37.8 68,883 4.7 Borrowings 52,891 43,127 22.6 53,569 (1.3) Key Ratios (%) Q2FY18 Q2FY17 YoY bps Q1FY18 QoQ bps Net Interest Margin 11.0 10.8 19 12.6 (159) Cost of Borrowings 8.6 9.2 (59) 8.4 21 Yield on Funds 17.5 18.3 (82) 19.3 (178) Cost to Income 44.7 42.8 186 41.1 361 Debt to Equity 3.5 5.2 (169) 5.3 (173) Capital Adequacy 25.4 21.5 394 20.2 527 Tier I Capital 19.9 15.0 489 14.2 566 Gross NPA 1.7 1.6 10 1.7 (2) Net NPA 0.5 0.4 8 0.5 (2) Provisioning Coverage 70.0 73.0 (300) 69.0 100 Credit Cost 1.4 1.4 2 2.0 (58) RoE (Ann.) 17.6 20.4 (280) 24.4 (680) RoA (Ann.) 3.2 3.2 0 4.0 (80) Change in estimates Old estimates New estimates Change % Year / Rs cr FY18E FY19E FY18E FY19E FY18E FY19E Net Interest Income 8,536 11,477 8,573 11,612 0.4 1.2 Pre-Provisioning Profit 5,078 6,778 5,112 6,907 0.7 1.9 Net Profit 2,540 3,318 2,562 3,402 0.9 2.5 EPS (Rs) 46.4 60.7 44.6 59.2-3.9-2.5 Source: Company; Geojit Research
Standalone Financials Profit & Loss Account Y.E March (Rs. cr) FY15A FY16A FY17A FY18E FY19E Interest Income 5,382 7,294 9,977 13,502 18,204 Interest Expense 2,248 2,927 3,803 4,930 6,592 Net Interest Income 3,134 4,367 6,174 8,573 11,612 % Change 27.4 39.4 41.4 38.9 35.4 Non-Interest Income 36 40 26 72 146 Net Income 3,170 4,407 6,200 8,644 11,757 Operating Expenses 1,428 1,899 2,564 3,532 4,851 Total Income 5,418 7,333 10,003 13,574 18,350 Total Expenditure 3,677 4,826 6,368 8,462 11,443 Pre-Provisioning Profit 1,742 2,507 3,636 5,112 6,907 % Change 29.0 44.0 45.0 40.6 35.1 Provisions 385 543 818 1,178 1,683 Profit Before Tax 1,357 1,965 2,818 3,934 5,223 Tax 459 686 981 1,372 1,821 Tax Rate (%) 34 35 35 35 35 Net Profit 898 1,279 1,837 2,562 3,402 % Change 24.9 42.4 43.6 39.5 32.8 No. of Shares (cr) 5 5 55 57 57 EPS (Rs) 18.0 23.9 33.6 44.6 59.2 % Change 24.3 33.0 40.7 32.7 32.8 Balance Sheet Y.E March (Rs. cr) FY15A FY16A FY17A FY18E FY19E Liabilities Capital 50 54 109 115 115 Reserves & Surplus 4,750 7,373 9,491 16,310 19,364 Borrowings 26,655 37,025 49,250 62,276 86,090 Provisions 319 885 1,295 1,745 2,354 Other Liabilities 1,006 1,637 3,580 4,359 5,251 Total Liabilities 32,780 46,973 63,725 84,805 113,174 Assets Fixed Assets 249 287 361 445 536 Investments 332 1,034 4,075 4,611 5,032 Advances 31,199 43,272 57,683 77,726 104,807 Other Assets 770 1,051 1,249 1,734 2,407 Cash & Bank Balances 229 1,329 357 289 392 Total Assets 32,780 46,973 63,725 84,805 113,174 Ratios Y.E March (Rs cr) FY15A FY16A FY17A FY18E FY19E EPS 18.0 23.9 33.6 44.6 59.2 DPS 1.8 2.5 3.6 3.4 5.0 BV 96.0 138.7 175.6 285.8 338.9 ABV 93.1 136.4 170.9 279.9 331.4 Valuation (%) P/E 96.4 72.5 51.5 38.8 29.2 P/BV 18.0 12.5 9.9 6.1 5.1 P/ABV 18.6 12.7 10.1 6.2 5.2 Div. Yield 0.1 0.1 0.2 0.2 0.3 Spreads (%) Yield on Funds 19.1 19.0 19.1 19.1 19.1 Cost of Funds 9.7 9.2 8.8 8.6 8.6 Capital (%) CAR 18.0 19.5 20.3 23.5 21.1 Tier I 14.2 16.1 14.6 18.9 16.5 Tier II 3.8 3.4 5.7 4.6 4.6 Provision Coverage Asset (%) 1.5 1.2 1.7 1.7 1.8 Gross NPA 0.5 0.3 0.4 0.4 0.4 Net NPA 71.0 77.0 74.0 76.0 78.0 Management (%) Debt/Equity 5.6 5.0 5.1 4.0 4.5 Cost/ Income 45.1 43.1 41.4 40.9 41.3 Earnings (%) NIM 11.1 11.4 11.8 12.1 12.2 ROE 20.4 20.9 21.6 19.7 19.0 ROA 3.1 3.2 3.3 3.5 3.4
Recommendation Summary (last 3 years) Dates Rating Target 2500 13 July 2017 Buy 1,576 25 July 2017 Buy 1,750 2000 13 November 2017 Buy 2,000 1500 1000 500 0 Nov-14 May-15 Nov-15 May-16 Nov-16 May-17 Nov-17 Source: Bloomberg, Geojit Research *Initiating Coverage Investment Rating Criteria Large Cap Stocks; Mid Cap and Small Cap; Buy - Upside is above 10%. Buy - Upside is above 15%. Hold - Upside is between 0% - 10%. Accumulate - Upside is between 10% - 15%. Reduce - Downside is more than 0%. Hold - Upside is between 0% - 10%. Reduce/Sell - Downside is more than 0%. To satisfy regulatory requirements, we attribute Accumulate as Buy and Reduce as Sell. The recommendations are based on 12 month horizon, unless otherwise specified. The investment ratings are on absolute positive/negative return basis. It is possible that due to volatile price fluctuation in the near to medium term, there could be a temporary mismatch to rating. For reasons of valuations/return/lack of clarity/event we may revisit rating at appropriate time. Please note that the stock always carries the risk of being upgraded to BUY or downgraded to a HOLD, REDUCE or SELL. Geojit Financial Services Limited has outsourced the preparation of this research report to DION Global Solutions Limited whose relevant disclosures are available hereunder. However, Geojit s research desk has reviewed this report for any untrue statement of material fact or any false or misleading information. General Disclosures and Disclaimers CERTIFICATION I, Kaushal Patel, employee of Dion Global Solutions Limited (Dion) is engaged in preparation of this report and hereby certify that all the views expressed in this research report (report) reflect my personal views about any or all of the subject issuer or securities. Disclaimer This report has been prepared by Dion and the report & its contents are the exclusive property of the Dion and the client cannot tamper with the report or its contents in any manner and the said report, shall in no case, be further distributed to any third party for commercial use, with or without consideration. Geojit Financial Services Limited has outsourced the assignment of preparation of this report to Dion. Recipient shall not further distribute the report to a third party for a commercial consideration as this report is being furnished to the recipient solely for the purpose of information. Dion has taken steps to ensure that facts in this report are based on reliable information but cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this report. It is hereby confirmed that wherever Dion has employed a rating system in this report, the rating system has been clearly defined including the time horizon and benchmarks on which the rating is based. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this report is not, and should not be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments. Dion has not taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. This report is not to be relied upon in substitution for the exercise of independent judgment. Opinions or estimates expressed are current opinions as of the original publication date appearing on this report and the information, including the opinions and estimates contained herein, are subject to change without notice. Dion is under no duty to update this report from time to time. Dion or its associates including employees engaged in preparation of this report and its directors do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report, including but not restricted to, fluctuation in the prices of securities, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc. The investments or services contained or referred to in this report may not be suitable for all equally and it is recommended that an independent investment advisor be consulted. In addition, nothing in this report constitutes investment, legal, accounting or tax advice or a representation that any investment or strategy is suitable or appropriate to individual circumstances or otherwise constitutes a personal recommendation of Dion.
REGULATORY DISCLOSURES: Dion is engaged in the business of developing software solutions for the global financial services industry across the entire transaction lifecycle and interalia provides research and information services essential for business intelligence to global companies and financial institutions. Dion is listed on BSE Limited (BSE) and is also registered under the SEBI (Research Analyst) Regulations, 2014 (SEBI Regulations) as a Research Analyst vide Registration No. INH100002771. Dion s activities were neither suspended nor has it defaulted with requirements under the Listing Agreement and / or SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 with the BSE in the last five years. Dion has not been debarred from doing business by BSE / SEBI or any other authority. In the context of the SEBI Regulations, we affirm that we are a SEBI registered Research Analyst and in the course of our business, we issue research reports /research analysis etc that are prepared by our Research Analysts. We also affirm and undertake that no disciplinary action has been taken against us or our Analysts in connection with our business activities. In compliance with the above mentioned SEBI Regulations, the following additional disclosures are also provided which may be considered by the reader before making an investment decision: 1. Disclosures regarding Ownership Dion confirms that: (i) It/its associates have no financial interest or any other material conflict in relation to the subject company (ies) covered herein at the time of publication of this report. (ii) It/its associates have no actual / beneficial ownership of 1% or more securities of the subject company (ies) covered herein at the end of the month immediately preceding the date of publication of this report. Further, the Research Analyst confirms that: (i) He, his associates and his relatives have no financial interest in the subject company (ies) covered herein, and they have no other material conflict in the subject company at the time of publication of this report. (ii) He, his associates and his relatives have no actual/beneficial ownership of 1% or more securities of the subject company (ies) covered herein at the end of the month immediately preceding the date of publication of this report. 2. Disclosures regarding Compensation: During the past 12 months, Dion or its Associates: (a) Have not managed or co-managed public offering of securities for the subject company (b) Have not received any compensation for investment banking or merchant banking or brokerage services from the subject company (c) Have received compensation for products or services other than investment banking or merchant banking or brokerage services from the subject (d) Have not received any compensation or other benefits from the subject company or third party in connection with this report. 3. Disclosure regarding the Research Analyst s connection with the subject company: It is affirmed that I, Kaushal Patel, employed as Research Analyst by Dion and engaged in the preparation of this report have not served as an officer, director or employee of the subject company 4. Disclosure regarding Market Making activity: Neither Dion /its Research Analysts have engaged in market making activities for the subject company. Copyright in this report vests exclusively with Dion. Please ensure that you have read the Risk Disclosure Documents for Capital Market and Derivatives Segments as prescribed by the Securities and Exchange Board of India before investing. Geojit Financial Services Ltd. (formerly known as Geojit BNP Paribas Financial Services Ltd.), Registered Office: 34/659-P, Civil Line Road, Padivattom, Kochi-682024, Kerala, India. Phone: +91 484-2901000, Fax: +91 484-2979695, Website: geojit.com. For investor queries: customercare@geojit.com, For grievances: grievances@geojit.com, For compliance officer: compliance@geojit.com. Corporate Identity Number: L67120KL1994PLC008403, SEBI Regn.Nos.: NSE: INB/INF/INE231337230 I BSE:INB011337236 & INF011337237 MSEI: INE261337230, INB261337233 & INF261337233, Research Entity SEBI Reg No: INH200000345, Investment Adviser SEBI Reg No: INA200002817, Portfolio Manager:INP000003203, NSDL: IN-DP-NSDL-24-97, CDSL: IN-DP-CDSL-648-2012, ARN Regn.Nos:0098, IRDA Corporate Agent (Composite) No.: CA0226. Research Entity SEBI Registration Number: INH200000345