Buy Bajaj Finance; target of Rs 2800: KR Choksey

KR Choksey's research report on Bajaj Finance

AUM at INR 933 bn grew by 35% (in-line with expectations), led by SME lending which grew by 42% yoy, followed by by the consumer book which grew by 35%. Although growth in rural book was highest at 75%, however it came on a low base. NII at INR 25.8 bn grew by 46.4% yoy/13.6% qoq, translating into spread of 11.6% for the quarter. The management expects some NIM pressure in Q3/Q4. Operational expenses grew by 28.3% yoy to INR 9.5 bn, resulting in PPOP of INR 16.2 bn, +60% yoy/18% qoq. The company cited continuous improvement efforts and certain other measures like carving out the housing finance company as some of the key factor driving operational performance. Provisioning expense at INR 3.3 bn translated into credit costs of 1.4% for the quarter, -37 bps yoy/+30 bps qoq. The company moved to IND-AS Q1FY19 onwards which impacted credit costs. While provisioning on NPAs reduced, that on standard assets increased (from 40 bps to 89 bps) as a result of customers lying in stage 2 which attracted nil provisioning earlier. PAT at INR 8.4 bn grew by 81% yoy/12% qoq. On the asset quality front, GNPAs/NNPAs at 1.39%/0.44% were down 9 bps/ up 6 bps qoq. PCR, under IND-AS stood at 68.3%.

Outlook
We value Bajaj Finance at INR 2800 per share, based on 6.5x FY20E BVPS. We  maintain BUY.

For all recommendations report, click here