Bajaj Finance (BAF) missed our Q2FY2022 earnings estimates due to higher operating expenses. The company’s consolidated PAT was at Rs. 1,481 crore versus our expectation of Rs. 1,517 crore (up 53% y-o-y and 48% q-o-q). The company reported a sharp increase in operating expenses (up by 76% y-o-y and 48% q-o-q) on account of high debt management cost and employee expenses. The company’s cost-to-income ratio stood at 38.9% versus 30.8% in Q1FY2022. NII grew by 26% y-o-y ( up by 16% q-o-q) to Rs. 4,290 crore and NIM was at 13.1%, expanded by 100 bps y-o-y/ 160 bps q-o-q, aided by aided lower CoF (down by 27 bps q-o-q). GNPA and NNPA stood at 2.45% (declined by 51 bps q-o-q) and 1.09% (down 36 bps q-o-q), respectively. Auto finance GNPA witnessed significant improvement (19.15% in Q1FY2022 versus 16% in Q2FY2022). PCR on GS3 stood at 55.5% versus 51.3% in Q1FY2022. Total provisions on S1 and S2 assets stood at Rs. 2,277 crore in Q2FY2022 (including a management overlay of Rs. 315 crore).
BAF stands poised to deliver robust AUM growth of 23-25% over FY22E through FY24E with RoE and RoA of 27% and 6% over FY23E and FY24E, respectively. This is likely on the back of improving auto financing cycle, pick up in mortgage lending business and lower estimates of credit cost supported by strong balance sheet. Further, operating efficiencies in terms of lower employee costs and collection is also expected to aid profitability. BAF is one of the most diversified NBFCs with a wide range of product offerings and is one of the early movers from Physical’ to ‘Phygital’. It has the ability to demonstrate high credit growth in the new credit cycle, aided by its strong cross-sell franchise and robust risk management framework. We maintain our Buy rating on the stock with a revised price target (PT) of Rs. 9,097.
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