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ADD on Bajaj Finance - Priced to perfection - HDFC Securities

Posted On: 2021-01-21 05:14:53 (Time Zone: Arizona, USA)

Mr. Krishnan ASV, Institutional Research Analyst, HDFC Securities

BAF reported a mixed quarter as LLPs remained expectedly sticky even as AUM growth showed signs of broad-based recovery as most businesses (excluding auto finance) recovered to 85-100% of pre-COVID disbursal levels. BAF is now focussing on business transformation exercises centered around an enhanced payment solutions and collaborating with DBS Bank on co- branded credit cards; improving its perception among customers. We are ~40bps north of management credit cost guidance for FY22-23E - we believe the stock is priced to perfection and offers no room for any disappointment.

Soft operating performance: BAF's operating performance came in below estimates as PPOP dipped ~3% YoY/QoQ to ~Rs 29bn (~6% below estimates).

Uptick in stress: Reported GNPAs dipped sharply (-106/-48bps) to 55bps on account of the standstill on NPA marking as per the recent SC order. Pro forma GNPAs came in at 2.86%, despite sizeable write-offs made (~Rs 23.4bn). The management indicated that while collections have improved, stress persisted in certain pockets, particularly auto finance (11.5% pro forma GNPAs). BAF restructured loans to the tune of ~Rs 20.4bn, and the management does not expect significant incremental restructuring. We anticipate GNPAs to reach ~3.9% by FY21E.

Provisions dipped ~21% QoQ to Rs 13.5bn, and were ~8.3% below estimates. On a pro forma basis, calculated coverage dipped to ~57%. We build provisions of Rs 60.4bn (4.3% ann.) in FY21E (vs. guidance of ~Rs 59.8bn). Our provisioning estimates remain conservative over FY22-23E at 2.1% ann. (vs. guidance of 160-170bps).

Sequential uptick in growth: After declining for two quarters, AUM grew 4.7% QoQ, led by a sequential uptick across most businesses (excluding auto finance). BAF acquired 2.19mn customers (vs. 2.46mn in 3QFY20) and the management remarked that disbursals across segments had reached 85- 100% of pre-COVID-19 levels. We build flattish AUMs (YoY) in FY21E, followed by an 24.1% CAGR over FY22-23E.

Shares of Bajaj Finance Limited was last trading in BSE at Rs.5116.65 as compared to the previous close of Rs. 4981.15. The total number of shares traded during the day was 279970 in over 22937 trades.

The stock hit an intraday high of Rs. 5224.9 and intraday low of 4985. The net turnover during the day was Rs. 1444146005.

Source: Equity Bulls

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