Accumulate Bajaj Finance; target of Rs 1600: KRChoksey

KRChoksey`s research report on Bajaj Finance

“Bajaj Finance delivered another strong performance with PAT of Rs164 crore growing 51.3 percent Y-o-Y & 2.3 percent Q-o-Q, above our expectation. NII grew strongly 33.5 percent Y-o-Y & down 3.6 percent Q-o-Q to Rs 454 cr aided by AUM growth 33.6 percent y-o-y. Incremental spreads were declined 113bps Q-o-Q due to higher contribution from business finance compared consumer finance during the quarter. Non interest income increased 15.3 percent Y-o-Y & 57.5 percent Q-o-Q primarily attributable to year end pick in distribution fee lines. Cost to income ratio increased 263bps Q-o-Q to 46.2 percent. Provisions for loan losses declined 12.3 percent sequentially from Rs51 crore in Q3FY13 to Rs45crore in Q4FY13 reflecting stable asset quality across product segments. Broadly asset quality remains stable sequentially with construction equipment portfolio witnessed marginal improvement Q-o-Q containing NPAs. Net NPA stood at 0.19 percent vs. 0.20 percent in Q3FY13 with 83 percent PCR. Asset under management increased 33.6 percent Y-o-Y driven by consumer finance (42 percent Y-o- Y) and SME loans (48 percent Y-o-Y).”
“Net interest income showed strong growth of 33.5 percent y-o-y supported by AUM growth 33.6 percent y-o-y and stable spreads. Asset yields decreased 149bps Q-o-Q primarily attributable lower incremental mix from consumer finance business and higher run down in the book. The management also highlighted that pricing remain stable in 4QFY13. We are building in spreads 9.5 percent and 9.4 percent in FY14 & FY15 respectively factoring pricing pressure in retail products. Assets under management grew 33.6 percent y-o-y driven by consumer finance (42 percent y-o-y) and SME finance (48 percent y-o-y). Within the consumer finance business, the company has gained market share both in two / three wheeler segments (24 percent of Bajaj Auto’s domestic sales in FY12 to 30 percent in FY13) and consumer electronic finance (increased from 11 percent in FY12 to 14 percent in FY13.) SME finance book growth is driven largely by strong cross sell products in the group vendors and innovative product offering to self employed and ULTRA HNI clients. The management believes expanding network in tier II and tier III cities coupled with improved cross selling capabilities would support business growth in coming years. We expect loan book to grow 27.5 percent CAGR from FY13-FY15 supported by higher market share in consumer finance business and healthy growth in small business finance segment.”
“Bajaj finance has delivered another strong and consistent operating performance during the quarter. We believe Bajaj Finance being wholesale funded entities would benefit from decline in wholesale rates and improved business prospect for small businesses in coming quarters. We believe Bajaj Finance continue to deliver 3 percent plus RoA and 20 percent plus RoE on sustainable basis in medium term. At Rs1,400 the stock trades 1.7x FY15 price to book and 8.9x FY15 earnings, further scope to re-rate on strong earning visibility and sustainable return ratio. We recommend ACCUMULATE rating on the stock with target price of Rs1,600 (potential upside 14.3 percent),” says KRChoksey research report.  Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their 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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