Hold Bajaj Finance; target of Rs 2150: Emkay Global Financial

Emkay Global Financial's report on Bajaj Finance

Bajaj Finance (BAF) has reported Rs1.38tn in AUM (down 6% qoq/up 7% yoy), slowest growth in the past 10 years. Slowing growth (in spite of lower repayments) is an indication of relatively faster run down of book (with shorter maturity) and a steep cut in disbursements amid Covid-19 lockdowns. Growth in new loans (-76.7% yoy) and overall customer franchise (+16% yoy) have come off sharply. Considering cautious management approach, the declining trend is expected to continue even during Q2FY21 as well. BAF remains in liquidity conservation mode, reporting a liquidity surplus of Rs176bn. The AUM under moratorium (based on count of customers) has declined from 27% as of April 30, 2020, to 15.5% as on May 30, 2020, which is a positive surprise. However, we also need to keep an eye on the overall trend in bounce rates (~37% during Q4FY20) as well as absolute quantum of moratorium pending, which would be a key aspect for future provisioning requirement. The release does not specify segment wise moratorium however we remain more sceptical of overall collections for 2W/3W and consumer durable segment, BAF has stated that it may consider additional accelerated provisioning for Cvoid-19 in Q1FY21 as well.

Outlook

We remain appreciative of BAF’s superior liability franchise and strong collection network. However, a clarity over asset quality would only emerge after the lockdowns and completion of the moratorium.

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