Akash Jain
At current market price of Rs 2,120 (Face Value: Rs 2), Bajaj Finance trades at a P/BV of 7.5x. We recommend hold for long term investors who have entered earlier. We believe this company should be in portfolio basket for 5 to 10 years to reap the benefits of wealth creation.
The company has witnessed significant rally in past years owing to its consistent robust performance which we expect to continue in the future as well. We believe in the maxim that quality comes at a premium and expect it to trade on premium valuations.
The company has Rs 84,033 crore of consolidated Assets Under Management with net NPA of 0.38 percent (3 months overdue) and a capital adequacy of 24.71 percent as of March 31, 2018. The company in Q4 FY18 has delivered a standalone post tax profit of Rs 721 crore which is a 61 percent growth. For FY18, Return on Assets and Return on Equity stood at 3.95 percent and 20.27 percent respectively.
The company’s strategy is to focus on cross sell, customer experience and product & process innovations to create a differentiated & profitable business model.
The company has done well in the consumer financing business with its strong capabilities to cross-sell which is evident from strong growth in the personal loans portfolio over the past three years. However, the company’s recent focus on SME and commercial lending segments may depress margins and RoE, but will keep growth strong.
Consumer Business - 46.6 percent, SME Business - 31.4 percent, Commercial Business - 14.7 percent and Rural Business - 7.3 percent accounted for FY18 AUM. The company has entered into housing finance business as well. Bajaj Housing Finance Ltd. has become fully operational from February 2018 and is 100 percent subsidiary of Bajaj Finance.
Atul Jain, formerly Enterprise Risk Officer for Bajaj Finance Ltd., has been appointed as Chief Executive Officer of Bajaj Housing Finance Limited. The housing finance company has expanded its presence in 215 new locations in the current quarter and is now present in 1,332 locations. It expects the geographic expansion to continue at 15 percent-20 percent annual growth rate.
According to the management indicated that housing finance business will be 35 percent of balance sheet in 2-3 years. BAF also indicated to infuse another Rs 1000 crore in December 2018 into the housing finance subsidiary.
The company reported stellar set of numbers in Q4FY18 with 40 percent YoY AUM growth and improvement in asset quality. It witnessed 61 percent year-on-year rise in profit at Rs 721 crore for March quarter, beating street estimates. Net interest income (NII) rose 40 percent to Rs 2,365 crore in the fourth quarter, which was higher than Rs 2,257 crore estimated by street participants.
Gross non-performing assets (GNPA) stood at 1.48 percent. "As required by RBI guidelines, the company has moved its NPA recognition policy from 4 months overdue to 3 months overdue in this financial year. The comparable gross and net NPA on 4 months overdue stood at 1.28 percent and 0.29 percent respectively as against 1.68 percent and 0.44 percent, respectively, as of March 31, 2017. Loan losses and provisions for Q4FY18 fell to Rs 274 crore from Rs 287 crore in the year-ago period. PCR stood at 75 percent in Q4FY18.
Disclaimer: The author is Vice President - Equity Research, Ajcon Global. The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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