Results Positive - Stress flows as expected, but Credit Cost estimates upgraded
Q3 Results v/s our expectations
- NII 4% below estimates - NII growth tepid due to higher reversal of interest income at Rs4.5bn and higher cost of liquidity surplus at Rs2.1bn
- Opex 5% higher than expectations - thus PPOP 8% below our estimate
- Net Credit cost at Rs13.5bn was lower than estimate of Rs15bn - however, the co. dipped into the Covid buffer (Stage 1 & 2 ECL, including Management Overlay) to one-time write-off principal and interest aggregating Rs23.5bn related to potentially unrecoverable loans.
- Now the co. holds a management overlay of just Rs8bn (55 bps of AUM) as at 31 December 2020
- Company's Proforma Gross and Net NPA stood at 2.9% and 1.2% respectively as against 1.34% and 0.56% respectively as of 30 September 2020 - this was despite writing off 1.5% of AUM during the quarter
- Earnings was lower by 8-9% v/s our estimate
Reassuring Management Commentary
- Company expects core AUM growth to resume to pre-COVID levels by Q4 FY21
- Most businesses have started disbursing 85-100% of last year's volumes with incremental growth being observed every month.
- In Q3, urban consumption businesses (B2B) were at 86%, rural consumption business (B2B) at 100%, credit card origination at 102%, ecommerce at 107% and auto finance business at 62% of last year's volume
- Mortgages disbursement was at 90% of Q3 FY20 level. AUM accretion in the quarter impacted by significant portfolio attrition caused by pricing pressures. Company has taken pricing actions to revert to pre-COVID growth levels by Q4 or Q1 FY22.
- Margin profile in all lines of businesses was steady at pre-COVID levels other than mortgages.
- Risk metrics of new volumes originated across businesses are tracking significantly better than pre-COVID origination.
- In Q3, Collection efficiencies in bucket 0 was back to pre-COVID levels and in early buckets (1 and 2), it was significantly better than pre-COVID levels.
- Company estimates residual credit costs in Q4 at Rs12-12.5bn. Thus, an overall credit cost of Rs59-60bn in FY21 on account of COVID-19. However, if the collection efficiencies remain better through Q4, there could be a further reduction in credit cost estimates.
- FY22 onwards, Company expects loan losses and provisions to revert to pre-COVID-19 levels of 160-170 bps of average assets. If recoveries are better in FY22, we may experience lower net loan loss to average assets.
- In the last 45 days, as part of its strategy to reduce liquidity buffer and optimize cost of funds, the Company has made prepayments of approximately. Cost of Funds was 7,8% in Q3 and is expected to decline to 7.5% by March 2021.
Shares of Bajaj Finance Limited was last trading in BSE at Rs.4981.15 as compared to the previous close of Rs. 4960.85. The total number of shares traded during the day was 165005 in over 17785 trades.
The stock hit an intraday high of Rs. 5031 and intraday low of 4900. The net turnover during the day was Rs. 819873997.