Non-banking finance company Bajaj Finance share price fell nearly 4 percent in the early trade on June 7 after the company said it may see higher non-performing assets in the first six months of FY22 due to the Covid-induced lockdowns.
The company has provided an update on estimated impact of the second wave of the pandemic on the company’s financials in FY22.
"Forward flows across overdue positions were higher due to constraints on collections amidst strict lockdowns across most parts of India. As a result, the company estimates its GNPA (gross non-performing asset) and NNPA (net non-performing asset) in Q1 and Q2 to be higher, " company said in its mid-quarter update on June 4.
The company estimates an incremental credit cost of Rs 1,100-1,300 crore versus planned credit cost in FY22 on account of disruption caused by the second wave.
The company's B2B and Auto Finance businesses were most affected due to strict lockdowns in majority of states. These businesses delivered 70% of their planned volumes in April 2021 as multiple states started imposing lockdowns from mid April. Their volumes dropped to 40% in May 2021, it added.
Other lines of businesses were less impacted in April and delivered 85% of planned disbursements.
The company estimates an impact of Rs 4,000-5,000 crore to its AUM growth plan for FY2022 on account of the disruption caused by the second wave. However, Q1 FY2022 will see higher impact on AUM due to lower volumes in B2B businesses, company said.
The company has taken several actions to reduce its operating expenses and cost of funds to partially mitigate the financial impact caused by lower AUM growth, it added.
The company had reported a 42 percent year-on-year (YoY) increase in the March quarter profit at Rs 1,347 crore on April 27 against profit of Rs 948.1 crore in the same quarter of the previous year.
Net interest income declined half a percent to Rs 4,659 crore from Rs 4,684 crore in Q4 FY20.
Gross non-performing assets (NPA) declined to 1.79 percent as of March 2021 from 2.86 percent in the previous quarter and net NPA also dropped to 0.75 percent from 1.22 percent in the same period.
Here is what brokerages have to say about the stock and the company:
JPMorgan | Rating: Neutral | Target: Rs 5,100
There is a 3% cut to growth & 80 bps higher credit costs. The mid-quarter update quantifies second wave impact.
The guidance is based on resumption of normal activity by July, while its does not factor in a risk of prolonged lockdowns.
The company, in our view, can make up for lost growth in H2, JPMorgan said.
Citi | Rating: Buy | Target: Rs 5,800
The company expects slower growth & higher provisions, factoring in 23% YoY AUM growth & 2.3% credit cost for FY22.
Expect 2%/2.2% gross NPA in Q1/Q2, while company has taken steps to reduce opex & cost of funds.
CLSA
The investors should not extrapolate the cut in estimates to large banks. The mid-sized banks not provided well & there may be earnings risks.
The company lowered its growth guidance by 3% and it has raised credit cost guidance by Rs 1,100-1,300 crore.
The brokerage did not give rating and target price.
Morgan Stanley | Rating: Overweight | Target: Rs 6,000
Morgan Stanley has cut EPS estimates by 12%/4%/6% for FY22/FY23/FY24. It expected some risk to earnings, but rise in credit cost guidance is much sharper. The stock is more likely to be weak in the near term.
Motilal Oswal | Rating: Buy | Target: Rs 6,200
The severity of earnings impact of the COVID second wave has been much lower than the first wave. The management is well-prepared to deal with this and compensate the lost business with the start of the unlocking process. Digital initiatives have been upfronted and are likely to provide significant benefit on the cost and growth fronts. The cross-selling of products to the existing Credit segment customer base of ~39m would be a key growth driver in FY22 as well.
At 09:23 hrs Bajaj Finance was quoting at Rs 5,775 down Rs 218.55, or 3.65 percent on the BSE.
The share touched a 52-week high of Rs 6,009 and a 52-week low of Rs 2,199 on 04 June, 2021 and 12 June, 2020, respectively.
Currently, it is trading 3.89 percent below its 52-week high and 162.62 percent above its 52-week low.
Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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