Shares in Bajaj Finance gained over 15 percent after the non-banking financial company declared a healthy set of quarterly earnings: with net profit rising 33 percent to Rs 258.4 crore while revenues jumped 38 percent to Rs 1,476.5 crore. The company’s net interest income too rose 33 percent to Rs 893 crore.
In an interview with CNBC-TV18's Sumaira Abidi and Nigel D'Souza, CEO Rajeev Jain said Q3 was the strongest quarter for the company this fiscal year. “We acquired 1.5 million customers in the quarter.”
Bajaj’s gross and net non-performing assets increased marginally to 1.5 percent and 0.49 percent, respectively, but Jain said he was not worried about the firm’s asset quality.
He also commented on concerns voiced by analysts over increasing margin pressures and said the company had been tweaking its business model to make it more balanced, and increasing its focus on rural lending.
“We launched our rural lending segment two years ago. We are now looking to launch rural MSME lending segment,” he said.
This morning, Goldman Sachs downgraded the stock from neutral to sell citing expensive valuations (three times FY16E book value compared to 1.5 times historical mean) and expected margin pressures and increasing competition.
Below is the transcript of the interview on CNBC-TV18.
Below is the transcript of Rajeev Jain\\'s interview with Sumaira Abidi and Nigel D\\'Souza on CNBC-TV18.
Sumaira: Your headline numbers are looking absolutely great. On the asset quality there is tad bit of worsening. Is this the beginning of what could become a worrying trend?
A: It has been a good quarter for us. All numbers have been strong. Our volume momentum was strong. We acquired 1.5 million customers in the current quarter. It was a strongest quarter in the first week in nine months of this year, net interest margins were very strong, operating expense were inline, loan loss and provision were inline as well and as a result profit grew 33 percent.
On the question you asked about gross non-performing asset (NPA) and net NPA, they were marginally up sequentially from 1.43 percent to 1.5 percent, net NPA moved marginally up. I would not worry about anything on the credit quality at this point in time.
Nigel: Can you take us through your loan book growth and could you break that for consumer segment as well as small and medium enterprises (SME)?
A: We have three lines of businesses; we have consumer business, we have small and medium enterprises business and the commercial business. The quarter was strong for the consumer business and the SME business and commercial business degrew given the overall broader weak sentiment on the corporate side of the business. However, among consumer and SME, the stronger one was consumer. October Diwali was strong across consumer category.
November and December have been softer than usual and demand momentum slowed down but October was enough to take the quarter through the numbers that we delivered. So strong on both consumer and SME and we are looking forward to the current quarter to make sure we can sustain some level of momentum.
Sumaira: This morning one of the bigger brokerage Goldman Sachs has issued a downgrade on your stock, amongst the concerns that they highlight could lead to underperformance is margin pressure. They estimate a margin decline of over 100 bps going up to FY17. They also named intense competition as one of the causes for this. Do you see any headwinds going into FY16 and FY17? What is it that your company would be working with?
A: We have a diversified business. We keep optimising our strategy based on the way we see external environment and internal performance of businesses. What you said the brokerage has put out as a sell and what they have articulated as a concern has not been true for Q3 numbers – that is very clear.
There has been no margin pressure in current quarter and the mix change has not changed the margins in a reasonable manner. In the long run however, we do agree that we would like a much more balanced portfolio and what they have articulated is, directionally our view to deliver more sustainability to our overall business model and the earnings momentum. So that’s how I would put it. Quarter three has been very strong, first nine months have been strong and as the external environment improves we could hold the momentum into the next year as well.
Nigel: Regarding Company’s plan to raise some funds beginning FY16, have you zeroed in anything on that and also with regard to Q1 of FY16 you plan to launch some rural lending business. Take us through both those two data points?
A: Our capital adequacy remains very strong. We have ended the quarter at 18.69 given the strong earnings momentum, we may not require capital for a reasonable period of time but it is up to the shareholders and the board to decide how they would like capital adequacy to be, but we are comfortable at this point of time on overall capital adequacy.
On rural lending, we been investing in growing rural business over the last two-and-a-half years. It is beginning to yield reasonable momentum. We launched consumer rural business two years ago. We are now backing that business with micro and SME rural lending out of the same branch, infrastructure and network that we have created. So, we will launch our MSME rural lending business some time in Q1 of next fiscal and we think in few years time rural could be a large opportunity for Bajaj Finance as a company.
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