Mutual Funds Commodities Research Tax Planning IPO Our Team Contact Us  

| More

Bajaj Finance Q2FY21 - Retain ADD - 12m PT of Rs. 3,600 - YES SECURITIES

Posted On: 2020-10-21 07:09:47

Mr. Rajiv Mehta, Lead Analyst - Institutional Equities at YES SECURITIES

Take comfort in management's credit cost guidance despite the spike in Stage-2 assets

Our earnings estimates for FY21/22 remain largely unchanged as the impact of calibration in AUM growth gets neutralized by lower cost growth and provisioning estimates (particularly for FY22). While the disclosure on Stage-2 assets (8% of AUM v/s usual 2-3%) could look perturbing, BAF has already built a strong provisioning cover of 32% on it. Additionally, management has retained its full-year absolute credit cost guidance implying that flow forward post moratorium and resolution experience are in-line with company's expectations. BAF's earnings performance in ensuing quarters is likely to be strong as growth momentum accelerates and charge-off rate declines. With growth and credit cost tracking back to long-term trajectory in FY22, we estimate BAF to deliver 4.3-4.5% RoA. Stock trades at 22x P/E and 4.5x P/ABV on FY22 estimates. With worst behind, valuation is expected to re-rate as confidence on growth comes back.

Call Highlights & Management Commentary

Current traction v/s Sept 2019

From September, BAF has started to accelerate volumes across products. With credit bureau information expected to be fully onstream by November, growth momentum will get further catalyzed.

September loan disbursements were at 62% of last year's volume - urban consumption businesses (B2B) was at 72%, rural consumption business (B2B) at 91%, credit card origination at 73%, ecommerce at 75% and auto finance at 54%

AUM growth expectations for FY21 toned down

Management estimates AUM growth for FY21 at 6-7% (versus 9-11% earlier). The current estimate has a potential upside from a stronger-than-expected momentum in Q4 FY21.

The company plans to achieve Feb 2020 (pre-COVID) loan originations by March/April 2021, thus positioning it to take advantage of a strong economic upturn in FY22.

Flexi Loans at 31% of AUM

In Q2 FY21, BAF converted Rs17.5bn of term loans into flexi loans (Rs86bn converted in Q1 FY21) to provide customers the flexibility of lower repayment and higher prepayment.

Outstanding flexi loans at Rs430bn across various products

Liquidity position - Reduction of surplus will aid NIM

BAF has consolidated liquidity buffer of Rs248bn and SLR investments of Rs26bn. This represents 21.9% of its total borrowing. The company will slowly dial down its liquidity buffer over the next six months.

This will ensure that cost of excess liquidity (Rs2.2bn in Q2 FY21) normalizes by Q4 FY21, which will benefit NIM.

Cost Management - Opex/NII will structurally remain lower

Management chose to cut cost over pursuing risky growth. Opex/NII improved to 27.8% in Q2 FY21 as against 34.6% in Q2 FY20.

BAF has started to gradually roll back some of its actions of operating expense management. However, as there are cost cuts which are structural, the Opex/NII ratio will remain much lower than pre-Covid times (33-34%).

Management expects to achieve Opex/NII ratio of 28-29% in FY23.

Credit Cost - Normalization expected in FY22

Against 15.7% of moratorium book in June 2020, Stage-2 as of Sept 30, 2020 stood at 8.0% (2.3% year ago)

Management is holding its credit costs estimate at Rs60-63bn for FY21. This leaves residual loan loss of Rs26-29bn in H2 FY21.

Loan loss estimates for FY21 are based on lifetime loss estimates on account of COVID-19. This means that company is accounting for additional losses that may otherwise occur in FY22.

FY22 onwards, credit cost should revert to pre-COVID-19 levels of 160-180 bps. If recoveries are better next year against provisions taken in FY21, BAF may even experience lower net credit cost.

Pursuant to the RBI resolution framework for COVID-19 related stress, the company has restructured assets worth Rs2.5bn.

Shares of Bajaj Finance Limited was last trading in BSE at Rs.3233.25 as compared to the previous close of Rs. 3262.1. The total number of shares traded during the day was 237773 in over 21519 trades.

The stock hit an intraday high of Rs. 3295 and intraday low of 3101.6. The net turnover during the day was Rs. 763032000.

Source: Equity Bulls

Click here to send ur comments or to

Disclaimer:The article above is a gist / extract of the original report prepared by the research firm / brokerage firm. This article is not to be considered as an offer to sell or a solicitation to buy any securities. This article is meant for general information only., its employees or owners or the research firms, its employees or owners won't be responsible for any liability that may arise from information, errors or omissions in these articles. or its employees or owners / the research firms or its employees or clients or owners may from time to time hold positions in securities referred in this article. For detailed research reports, please contact the concerned research firm directly.

Other Headlines:

Engineers India - Consultancy segment outperformance - ICICI Securities

Engineers India - Q2 FY21 Result Update - YES SECURITIES

Motherson Sumi Systems - Company Update - Virtual Investor Conference - ICICI Direct

Mutual Fund Review - November, 2020 - ICICI Direct

Sadbhav Engineering - Q2FY21 Company Update - ICICI Direct

IRB Infrastructure - Q2FY21 Company Update - ICICI Direct

Vodafone Idea fund raising - Angel Broking

Rupee - Nov 23, 2020 - Reliance Securities

Crude Oil - Nov 23, 2020 - Reliance Securities

Q2FY21 Bank Result Quick Review - Angel Broking

Banks & NBFC's Sector Update Report - Yet another watershed moment? - HDFC Securities

Galaxy Surfactants - EBITDA/kg has an upside risk - ICICI Securities

Diagnostics - COVID-19 tests continue to trend higher - ICICI Securities

Banking & Financial Services - Sector Update - Nov 22, 2020 - ICICI Direct

Dalmia Bharat Sugar - Q2FY21 Company Update - ICICI Direct

Balkrishna Industries - Industry export growth momentum continues - ICICI Securities

Covid Recovery Pulse - Festive positivity continues in auto retails, E-way bill generation improves... - ICICI Direct

Quant Pick - Exide Industries - ICICI Direct

Shankara Building Products - Q2FY21 Company Update - ICICI Direct

Triveni Engineering - Q2FY21 Company Update - ICICI Direct

Initiating Coverage on Sudarshan Chemical - Leaping into the league of giants - HDFC Securities

Earnings Wrap Q2FY21: Earnings outperform, post Covid recovery picks up steam - ICICI Direct

Vodafone Idea Positive development beneficial for IDFC first bank - Angel Broking

Lakshmi Vilas Bank - Angel Broking

WIPRO Buyback record date announcement - Angel Broking

TCS buyback record date announcement - Angel Broking

Banks Sector Update - Collection efficiency - a positive surprise! - HDFC Securities

Quant Pick - Max Financial Services - ICICI Direct

Graphite India - Q2FY21 Result Update - ICICI Direct

Gladiator Stocks - Maruti Suzuki India - ICICI Direct

Exide Industries - Q2FY21 Result Update - ICICI Direct

Mishra Dhatu Nigam - Execution outlook remains strong - ICICI Securities

Bharat Electronics - Diversifying into multiple revenue streams - ICICI Securities

Wipro Ltd - Virtual Analyst Meet Update - ICICI Direct

Avadh Sugar & Energy - November 2020 - Company Update - ICICI Direct

Mahindra Lifespace Developers - H1FY21 Company Update - ICICI Direct

Quant Pick - Godrej Consumer Products - ICICI Direct

India Equity Strategy Report - Quarterly flipbook - HDFC Securities

Maintain REDUCE on Jubilant FoodWorks - Recovery continues; priced-in - HDFC Securities

Maintain BUY on Ahluwalia Contracts - Q2FY21 - Significant beat on execution - HDFC Securities

Repco Home Finance Limited - Q2 FY21 Result Update - YES Securities

JK Lakshmi Cement - Target upgrade - Angel Broking

BUY on Petronet LNG - Stellar quarter - HDFC Securities

Maintain BUY on Prestige Estates Projects - Capex cycle to gather pace - HDFC Securities

REDUCE on LIC Housing Finance - Tread with caution - HDFC Securities

SELL on New India Assurance - High claims ratio dents profits - HDFC Securities

New orders for L&T - Angel Broking

Cipla - Multi-G agreement - Angel Broing

REDUCE on Eicher Motors - 'Meteor' to drive sales; valuations remain expensive - HDFC Securities

BUY on Galaxy Surfactants - Highest volumes in a quarter - HDFC Securities

Website Created & Maintained by : Chennai Scripts
West Mambalam, Chennai - 600 033,
Tamil Nadu, India

disclaimer copyright © 2005 - 2019