Bajaj Finance (BAF IN)static-news.moneycontrol.com/static-mcnews/2019/08/Bajaj... · 2019-08-09 ·...
Transcript of Bajaj Finance (BAF IN)static-news.moneycontrol.com/static-mcnews/2019/08/Bajaj... · 2019-08-09 ·...
Rating: BUY | CMP: Rs3,266 | TP: Rs3,860
Bajaj Finance (BAF IN)
In a sweet spot
Shweta Daptardar [email protected] | 91-22-66322245
Bajaj Finance
August 8, 2019 2
Contents
Page No.
Company Overview ............................................................................................... 5
Bajaj Finance – a structural play ........................................................................ 5
BAF: diversified lending model .............................................................................. 6
BAF’s Consumer lending to expand at 30% CAGR over FY19-21E ............... 7
BAF’s formidable play in consumer lending market ......................................... 10
Consumer credit growth intact ...................................................................... 10
Higher Bajaj Auto sales penetration to aid consumer lending ...................... 11
Distribution network to expand at 30% CAGR (FY19-21E) .......................... 11
Customer addition at 1 mn/quarter remains strong ....................................... 12
Top quartile return profile – edge over other NBFC ............................................. 17
Clear customer segmentation .......................................................................... 17
Fee-income to assets set to climb to 1.8% by FY21E ...................................... 19
Housing business spin-off: key RoA trigger ..................................................... 20
Why BAF would grow in mortgage finance segment? .................................. 21
Industry drivers stand in favor ................................................................... 21
How housing business spin-off is a win-win both for parent and the sub? ....... 22
Well placed in uncertain times ............................................................................. 24
BAF’s liquidity position ..................................................................................... 24
BAF’s matched ALM position ........................................................................... 24
BAF’s diversified funding structure ................................................................... 25
BAF’s diligence on capital leverage ................................................................. 26
BAF’s impeccable asset quality (<2% GNPA maintained) ............................... 27
Financial Analysis ................................................................................................ 30
BAF AUMs to grow at 31% CAGR over next two years ................................... 30
Change in mix to compress NIM’s by 60bps over FY19-21 ............................. 31
Scope for operating leverage continues to stay ............................................... 32
Healthy asset quality sustains despite robust growth ....................................... 35
Strong show on earnings ................................................................................. 35
Superior Valuations justified ................................................................................ 37
Annexures: .......................................................................................................... 40
Key strategic partnerships ................................................................................ 40
Key Technological Initiatives ............................................................................ 41
Channel checks corroborate BAF’s CD dominance: ........................................ 41
August 8, 2019 3
Rating: BUY| CMP: Rs3,266 | TP: Rs3,860
In a sweet spot
Quick Pointers:
Unmatched ecosystem in consumer lending with strong brand, distribution and
technology
Positive ALM, <2% GNPA and diversified liability mix
Spinoff of mortgage business into BHFL will accelerate growth
We initiate coverage on Bajaj Finance (BAF) with a BUY given formidable
franchise in consumer financing, strong growth momentum in rural finance
and expected uptick in mortgage business post spin off in step down
subsidiary. BAF has emerged strong in the recent NBFC rout given 1) <2%
GNPA and 65-70% PCR across cycles, avg. 40% positive ALM gap in short
maturity buckets and diversified liability mix. We believe a CAGR of 31% in
AUM and stable asset quality will enable 32% PAT CAGR over FY19-21. We
expect premium valuations to sustain given ROA and ROE of 3.7%/20.1%,
lower ALM risk and strong retail presence in consumer segment. We assign
P/ABV multiple of 6.9x FY21E to arrive at price target of Rs 3,860.
Diversified retail play: BAF has developed a formidable technology-led diversified
lending model spread across more than 50 products encompassing consumer,
SME, commercial and rural segments. We expect its core consumer business to
sustain 31% CAGR led by (1) expanding distribution at 52% CAGR with strong
presence in modern retail and online formats (2) cross selling opportunities in strong
customer base of 36mn (growing at ~1m/quarter) (3) financing avg 30% of Bajaj
Auto’s 2/3W. In addition, faster growth in mortgages (57% AUM CAGR) and rural
lending (56% CAGR) will enable 1.7x increase in book size to Rs 2003bn by FY21.
Mortgage Spin off to accelerate growth: BAF has spin off mortgage business
into a separate step down entity (Bajaj Home Finance Ltd) which will enable lean
opex business structure, access to low cost funding (NHB, ECB) and cross sell
opportunity to BAF’s credit filtered customer base (27mn). We envisage 57% AUM
CAGR which will increase the book to Rs432bn book with ROA of 1.4% by FY21.
BAF has emerged stronger in current NBFC aftermath: BAF has emerged
stronger in current business environment given 1) liquidity buffer of Rs 63bn 2) avg.
38% positive ALM gap maintenance in 1 month-1 year maturity bucket 3) diversified
liability mix (33% bank borrowings, 16% deposits, 46% market borrowings) 4)
diligence on capital leverage at/below 7x and 5) <2% GNPA across cycle by early
paring exposures in stressed sectors, stringent write-off policy and aggressive
provisioning (avg PCR of 65% since FY18). We believe strong processes will
enable 31% AUM CAGR and resilient asset quality (1.8% GNPA) by FY21.
Top quartile return profile – edge over other NBFCs: Defying market challenges,
BAF promises 3.7% RoAs and 20.1% RoE by FY21 largely led by BAF’s high fee
income base (~38% of PBT) aided by retail ecosystem across lending product
offerings, payment solutions and e-commerce platforms with customer centricity.
Bajaj Finance (BAF IN)
August 8, 2019
Company Initiation
Key Financials - Consolidated
Y/e Mar FY18 FY19 FY20E FY21E
Net Int.Inc. (Rs m) 81,305 1,18,615 1,58,330 2,00,482
Growth (%) 32.0 45.9 33.5 26.6
Op. Profit (Rs m) 48,739 76,805 1,03,241 1,36,062
PAT (Rs m) 24,964 39,950 52,278 69,438
EPS (Rs.) 44.5 69.4 89.1 116.3
Gr. (%) 32.5 55.9 28.4 30.6
Margin (%) 11.4 12.0 11.6 11.2
RoAE (%) 20.1 22.5 20.6 20.1
RoAA (%) 3.4 3.8 3.6 3.7
PE (x) 73.4 47.1 36.7 28.1
P/BV (x) 11.6 9.6 6.2 5.1
P/ABV (x) 11.8 9.9 6.4 5.3
Key Data BJFN.BO | BAF IN
52-W High / Low Rs. 3,762 / Rs. 1,912
Sensex / Nifty 36,691 / 10,856
Market Cap Rs. 1,894 bn/ $ 26,740 m
Shares Outstanding 580m
3M Avg. Daily Value Rs. 13667.83m
Shareholding Pattern (%)
Promoter’s 58.68
Foreign 21.28
Domestic Institution 8.26
Public & Others 11.78
Promoter Pledge (Rs bn) -
Stock Performance (%)
1M 6M 12M
Absolute (12.2) 21.1 18.9
Relative (5.4) 22.0 22.0
Shweta Daptardar
[email protected] | 91-22-66322245
Bajaj Finance
August 8, 2019 4
Source: Company, PL
BAF’s business model is built upon a two-fold strategy of (i) building scale and (ii)
maximising profits. While mortgage, small business loans and commercial lending
helps in building up a scale, consumer durable loans, personal loans and 2-wheeler
financing prove as profit maximizers.
BAF’s Unique business strategy
Source: Company, PL
Consumer
• Consumer Durable Loans
• Digital Product Loans (1)
• Lifestyle Product Loans
• Lifecare financing
• EMI Cards
• EMI cards - Retail Spend Financing
• 2-Wheeler & 3-Wheeler Loans
• Personal Loan Cross-Sell
• Salaried Personal Loans (1)S
• E-Commerce -Consumer Finance
• Retailer Finance
• Salaried Home Loan
• Salalried Loan Against Property
SME
• Unsecured Working
• Capital Loans (1)
• Loans to Professionals (1)
• Secured Enterprise Loans
• Used Car Financing
• Loan Against Property
• Self Employed Home Loans
• Lease Rental Discounting
Commercial
• Securities Lending
• Large Value Lease Rental Discounting
• Auto Component Manufacturer Lending
• Financial Institutions Lending
• Light Engineering Lending
• Specialty Chemicals Lending
• Corporate Finance Loans
• Developer Finance
Rural
• Consumer Durable Loans
• Digital Product Loans
• Lifestyle Product Loans
• Personal Loans Cross Sell
• Salaried Personal Loans
• Gold Loans
• Loans to Professionals
• Loan Against Property
• Home Loans
• Secured Enterprise Loans
Deposits
• Retail Term Deposits
• Corporate Term Deposits
Partnerships
& Services
• Life Insurance Distribution
• General Insurance Distribution
• Health Insurance Distribution
• Co-Branded Credit Card
• Co-Branded Wallet
• Financial Fitness Report
• Property search services
• Property Fitness Report
Sustainable growth & profitable
model
Distribution, reach and
partnerships
Tech, data and
analytics
Product suite
Customer franchise
BAJAJ FINANCE LIMITED – Business Snapshot
BAJAJ HOUSING FINANCE LIMITED
Bajaj Finance
August 8, 2019 5
Company Overview
Bajaj Finance – a structural play
BAF (Bajaj Finance) is a 31-year old diversified financial services organisation
focused on financing mass affluent customers with its 944 urban, 951 rural and over
97,000+ distribution outlets. With more than 50 product lines spread across
consumer financing, SME financing, commercial, rural and mortgage lending, BAF
has emerged as a diversified bank-like lender with an enviable franchise of 37mn
customers.
BAF’s business model is underpinned by cross selling, reviewing customer know-
how, product inventions and process innovations with optimum risk and profits akin
to a typical banking model.
BAF’s unique product positioning strategy
Low Ticket / High volume
Consumer Durables
Personal Loans
2-Wheelers
High Ticket / Low volume
Mortgages
Small biz loans
Commercial lending
Source: Company, PL
BAF has shown successful track record of 46% AUM CAGR and 52% PAT CAGR
over past decade led by strong execution, multiple product innovations, risk based
pricing and customer centricity.
We expect BAF to deliver another strong 31% AUM CAGR, 32% PAT CAGR
on the back of 29% CAGR in customer growth over FY19-21E- making it one
of the best plays in NBFCs. For housing finance subsidiary, Bajaj Housing
Finance Ltd (BHFL), we envisaged 57% AUM CAGR to Rs 432bn book, 1.4%
RoA by FY21E.
Bajaj Finance
August 8, 2019 6
BAF: diversified lending model
From being a captive 2-wheeler financier to a full-grown retail franchise, BAF
is a unique technology-led institution comparable to bank-like diversified
lending model. While the sector turned fragile post Sep’19 ILFS fallout,
NBFCs are considering new avenues to diversify their lending portfolios. In
such a scenario, we believe BAF’s lending business is geared to expand 1.7x
over FY19-21E led by its diversified product range (50+ products: bank-like)
spread across 4 lending businesses- Consumer (40%), SME (37%),
Commercial (15%) and Rural (8%) (mortgages included).
While we expect the flagship consumer business to maintain the major share in
overall mix, the incremental focus will tilt towards mortgages and rural lending as
competition swells. The commercial lending business is likely to witness selective
portfolio expansion where there is domain expertise. Rural lending that formed 3%
of overall mix in FY16 grew rapidly across rural lifestyle and consumer durable in
past 4 years. Standing at 8% of overall share today, rural business is expected to
climb to 11.2% by FY21, we reckon.
Consumer lending dominates; Rural grows rapidly
39% 41% 43% 45%39% 40% 40% 40%
53% 48% 42% 36%38% 38% 37% 36%
8% 10%12%
14%16% 13% 14% 13%
0% 1% 3% 5% 7% 8% 9% 11%
0%
20%
40%
60%
80%
100%
FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E
Consumer Lending SME Lending Commercial Lending Rural Lending
Source: Company, PL (Note: Above business mix includes mortgage portfolio)
Market leader in consumer lending business: With 40% business contribution
from consumer lending, BAF is well placed to leverage upon the rapidly expanding
consumption market in India. Recording 43% business CAGR over FY10-19 led by
core consumer durable (CD) & lifestyle product financing, BAF maintains its
leadership position across consumer electronics, white goods and digital products
and personal loans. (Refer Exhibit 76) Over past 3 years, BAF has reported 2x
increase in consumer lending business led by 5x increase in digital product finance,
4x increase in home loan portfolio and 3x increase in personal loan cross sell.
BFL continues to be dominant
consumer durables, furniture and
digital products lender (29% YoY
growth in consumer durable/ digital
products financing in FY19)
Bajaj Finance
August 8, 2019 7
Consumer lending book grew at 31% CAGR between FY17-FY19
Consumer lending business (AUM Rs mn) FY17 FY18 Q1FY19 Q2FY19 Q3FY19 FY19 Q1FY20
Consumer B2B -Auto Finance Business 62910 67490 76760 90340 97260 109080
Consumer B2B - Sales Finance Businesses 131810 92530 113920 124370 141500 122610 140860
Consumer B2C Businesses 139780 154020 168740 186840 210000 230020 248890
Overall consumer business 271590 309460 350150 387970 441840 449890 498830
Source: Company, PL
BAF’s Consumer lending to expand at 30% CAGR over FY19-21E
We expect BAF to drive 31% AUM CAGR in consumer lending business over FY19-
21E as it continues to leverage data on existing & prospective customers through
cross sell, increasing digitisation & penetration and launching new products. It
targets to reach ~100mn customers (current ~37mn) over next 5 years.
Expect 30% CAGR in consumer business
50 71 93 1
32 190
271
321
467
628
800
49%
43%
31%
42%44% 43%
18%
45%
34%
27%
0%
10%
20%
30%
40%
50%
60%
0
100
200
300
400
500
600
700
800
900
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E
Consumer Lending AUM (bn) Growth
Source: Company, PL
SME Lending – Huge prospective customer base: With 37% of the overall AUM
share, SME lending forms second biggest portfolio for BAF that has grown at 40%
CAGR over the past decade. With diversified product offerings from LAP, LRD, HL
to affluent SMEs and self-employed professionals to developer financing under
BHFL (step-down housing subsidiary), BAF’s focus on Tier 2 markets (beyond top
40 markets) has helped to tackle higher competition and acquisition costs.
Recent times witnessed a meaningful slowdown in SME businesses due to twin
structural challenges of GST and demonetization. On similar lines, LAP book that
witnessed robust 38% CAGR since FY11, slowed to 22% between FY14-FY17 and
today stands at only Rs25bn (BHFL book) observing meaningful slowdown. LAP
proportion dipped from 28.7% in FY14 down to 12% of the subsidiary AUM as at
Jun’19 owing to increased competitive pressures, higher commission pay-outs
leading to lower risk-reward and BAF’s focus on direct lending over intermediaries.
Consumer finance business stands
equipped to carry voluminous data
with consolidation of its front office,
mid office and back office on a single
cloud platform.
Bajaj Finance
August 8, 2019 8
LAP stabilizes, increased focus on self-employed HL & biz loans
SME lending business segments (Rs mn) FY14 FY15 FY16 FY17 Q2FY18
Total Business Loans 20330 30840 54210 73740 85770
Business Loans - 24610 43090 56400 62290
Professional Loans - 6230 11120 17340 23480
Loan against property 69070 82320 83320 84230 85960
Home loans (Self Employed) 23510 30710 32330 39460 44670
SME cross sell 7180 12330 18870 22500 22480
Overall SME loans 120090 156200 188730 219930 238880
Source: Company, PL
Sensing market headwinds since FY17, BAF strategically chose to focus on self-
employed home loans and perceivably less risky professional loans. It implemented
a unique SME business strategy by adopting direct customer channels, doing credit
appraisals with sophisticated underwriting and introducing loans to a new class of
professionals (engineers, doctors which recorded sturdy 79% growth YoY in FY18).
Against this backdrop, we believe BAF’s SME business stands geared to record
27% CAGR over FY19-21E. SME lending share is likely to stabilize at ~35% of
overall mix over next 3 years despite caution on LAP business.
SME geared to clock 27% CAGR (FY21 not getting updated)
53
78
129
156
187
216
315
445
573
723
58%
47%
66%
21% 20%16%
46%41%
29%26%
0%
10%
20%
30%
40%
50%
60%
70%
0
100
200
300
400
500
600
700
800
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E
SME AUM (bn) Growth
Source: Company, PL
Commercial lending – selective expansion: Contributing 15% to overall AUMs,
commercial has grown at 53% CAGR over FY14-19. However, competitive
intensities and challenging funding environment in the market called for selective
expansion with adequate provisioning for key account.
Collateralized by market securities or mortgages, BAF’s commercial book offers
financing against shares, MFs and insurance policies and deposits to mid-market
corporates. Focusing on high net worth and ultra-high net worth individuals, BAF’s
loan against shares (LAS) portfolio stood at ~Rs91bn as at Jun’19-end and with
LTVs of 43-44%, the underlying asset quality continues to hold good.
While quality LAS is here to stay, BAF’s domain expertise particularly in auto
component manufacturing and FI lending business will continue to be strong in the
commercial lending business. We expect commercial lending business to clock
29% AUM CAGR over FY19-21E with share in mix expected at 13% levels by FY21.
Staying ahead of time, BAF
discontinued its warehouse receipt
financing business from Apr’19 given
agrarian stress and lack of business
visibility
Bajaj Finance
August 8, 2019 9
Commercial lending to report 29% CAGR
29
26
18 3
3 52
83
133
154
213
256
214%
-8%-30%
82%
56% 60% 60%
16%38%
20%
-50%
0%
50%
100%
150%
200%
250%
0
50
100
150
200
250
300
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E
Commercial Lending AUM (bn) Growth
Source: Company, PL
Rural lending – key business driver: Banking on the underpenetrated rural
consumption market, BAF caters to the needs of rural consumer and MSME
customers with a unique hub and spoke business model pan India. With diversified
offerings across 10 rural products namely: durable loans, digital lifestyle, personal
loans, loans to salaried and gold loans in consumer category, the rural MSME
business offers unsecured and secured loans to self-employed clients in rural
markets. Business loans form part of unsecured loans and professional loans
(Doctors, Engineers and CA’s) loans are offered as secured LAP.
Merely five-year-old, BAF’s rural business has recorded 184% AUM CAGR over
FY14-19 (8% of AUM) and 100% growth traction over past two years. Scaling up
rapidly and growing on a lower base, rural lending AUM CAGR is expected to record
56% CAGR with its share in mix poised to inch up 300bps to 11% over FY19-21E.
Rural maintains momentum; expect 56% CAGR
313
31
55
92
147
225560%
306%
129%
78% 69% 59% 53%
0%
100%
200%
300%
400%
500%
600%
0
50
100
150
200
250
FY15 FY16 FY17 FY18 FY19 FY20E FY21E
Rural Lending AUM (bn) Growth
Source: Company, PL
We have maintained mortgage lending as part of SME/commercial/rural lending
businesses until the entire mortgage assets are transferred to the newly formed
subsidiary.
Rural geographic presence is spread
across 903 towns/villages with retail
presence across 14,500 stores
Rural gold loan pacing up with 23
exclusive branches; aim 500-700 gold
branches next 5 years (ATS
Rs85000-90000) for affluent
customer
Bajaj Finance
August 8, 2019 10
BAF’s formidable play in consumer lending market
Consumer credit growth intact
Consumption to grow at 12% CAGR: Domestic consumption over the past
decade has increased 3.5x to Rs110tn in FY18. BCG estimates 12% CAGR in
consumption which will increase market size to Rs335tn by 2028.
Consumption to expand at 12% CAGR over next decade
31
110
335
0
50
100
150
200
250
300
350
400
2008 2018 2028
Total domestic consumption market (rs tn)
Source: Company, PL
...with consumer durable market to grow at 14% CAGR: As per IBeF, the
Rs812bn (FY16) consumer durable market is likely to expand to Rs1340bn by FY20
implying 14% CAGR. BAF largely operates in white goods market (like AC, washing
machines, smartphones etc.) which is estimated to be Rs350-400bn and is growing
faster than the overall white goods/electronics market.
Consumer Durable market set to grow at 14% CAGR by FY20
White goods market (units in mn) 2017 2022E CAGR %
Smartphones 150 250 11%
Television 13 18 7%
Refrigerator 12 18 8%
AC 4 8 15%
Microwave 1.5 2 6%
Source: Company, PL
Retail credit to expand at 24% CAGR: 10.3% CAGR in consumer durable credit
market, changing consumer behaviour, evolving spending patterns and improved
credit access has enabled 4x growth in retail credit market over FY08-FY18. With
continued momentum, retail credit is expected to expand at 24% CAGR by FY20E.
Retail lending poised for 1.5x expansion over next 2 years
Retail credit market size (Rs bn) FY09 FY19 FY20E FY09-FY19
CAGR %
FY19-FY20E
CAGR %
Overall Retail Loan credit market 5,625 22,207 27,457 14.5% 24%
Consumer Durable credit market 82 63 69 10.3% 10%
Credit card loan market 280 883 1,121 10.5% 27%
Source: Company, PL
Retail lending grew 4x over past
decade; poised for 1.5x expansion
over next 2 years
Bajaj Finance
August 8, 2019 11
Higher Bajaj Auto sales penetration to aid consumer lending
Being captive financier for Bajaj Auto’s 2/3-wheeler business, BAF’s auto financing
business forms 22% of consumer lending business and 8.5% of overall AUMs. Its
financing penetration into 2-wheeler and 3-wheeler sales has remained at an
average of 32% and 22-23% respectively since last 7 years thus achieving a strong
position in the segment. Defying market challenges, FY19 stood healthy with BAF
benefitting on robust Bajaj Auto sales traction that exceeded industry levels. Hence,
51% of Bajaj Auto 2-wheeler sales stood financed by BAF in Q1FY20, highest in
company history. Going ahead, the 20%+ auto finance share into consumer
business of BAF and with 33% expected penetration into Bajaj Auto 2-wheeler sales
by FY21E should continue to boost consumer lending traction.
Bajaj Auto 2-wheeler sales for tough year FY19 exceeded industry levels– BAF penetration continues stronger
Particulars FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20E
2W Volumes (mn units) 13.4 13.8 14.8 16.0 16.5 17.6 20.2 21.2 20.5
Growth in 2W volumes (YoY) % 14.1 2.9 7.1 8.1 2.8 6.9 14.9 4.9 -3.2
2W Financing Market (Rs bn) 456.8 470.0 503.4 544.1 601.3 642.8 772.7 810.2 871.3
2W financing growth (YoY) % 14.1 2.9 7.1 8.1 10.5 6.9 20.2 4.9 7.5
BAJAJ AUTO domestic 2W volumes (mn units) 2.6 2.5 2.1 1.8 1.9 2.0 2.0 2.5 2.6
BAJAJ AUTO 2W volume growth (YoY) % 6.3 (4.0) (14.8) (15.6) 7.2 5.4 1.3 28.7 1.9
BAF's 2-wheeler financing as % of Bajaj Auto 2-w sales 24.0 30.0 30.0 31.0 30.9 37.1 33.0 44.0 33.0
Source: Company, PL
Distribution network to expand at 30% CAGR (FY19-21E)
BAF’s distribution network stands spread across 1,895 branches and yearly branch
expansion contributes to ~6-7% AUM growth in the following year. Over the years,
effectiveness of the branches has increased with faster roll out and break-even.
BAF’s distribution network expansion is expected to be maintained at 30% CAGR
over next two years which will continue to accelerate AUM traction.
BAF’s expanding branch footprint
393 659 915 1332 1830 2379 3093
114%
68%
39%46%
37%30% 30%
0%
20%
40%
60%
80%
100%
120%
0
500
1000
1500
2000
2500
3000
3500
FY15 FY16 FY17 FY18 FY19 FY20E FY21E
Total Branches % increase (RHS)
Source: Company, PL
Last 6 months, liquidity crisis offered
BAF an opportunity to gain sizeable
market share in 2-wheeler financing
Bajaj Finance
August 8, 2019 12
BAF’s rapidly expanding branch network competes with top private banks that stand
well entrenched in the retail lending space. Close-to-customer presence with
deeper network and analytics support to deliver in lowest possible turnaround time
has enabled BAF to stand well in-line with its key competitors in the retail business.
BAF’s network expansion vis-à-vis key retail lenders
Branch Network Increase % YoY
FY15 FY16 FY17 FY18 FY19 FY20E FY21E
HDFC Bank 18% 13% 4% 2% 7% 7% 7%
ICICI Bank 8% 10% 9% 0% 0% 1% 1%
Axis Bank 8% 12% 14% 12% 9% 15% 15%
HDB Financial Services 55% 119% 24% 1% 16% 15% 16%
BAF 114% 68% 39% 46% 37% 30% 30%
Source: Company, PL
In addition, BAF’s overall distribution network has been supported by customer
touch points that increased ~6x from 16,700 in FY15 to 97,000 in Q1FY20. More
than 50% of incremental stores in this period comprised of digital products or EMI
retail stores.
POS aids consumer lending verticals, growing at 50%+ annually
Distribution (No. of Point of Sales) FY15 FY16 FY17 FY18 FY19 Q1FY20
Consumer Durable 7,000 9,400 14,000 15,500 20,400 22,000
Digital 2,650 5,200 5,900 15,900 22,500 23,100
Lifestyle 1,150 3,200 3,900 6,000 7,700 8,300
Retail EMI Retailer - - 5,600 12,100 19,100 20,700
2W Dealer/ASCs 3,000 3,000 3,200 3,900 4,600 4,900
Rural Consumer Durable 1,500 3,200 5,500 8,200 14,500 15,200
DSA 700 800 1,500 2,100 2,800 2,800
Total 16,700 24,800 39,600 64,300 91,600 97,000
Source: Company, PL
Customer addition at 1 mn/quarter remains strong
BAF commenced its consumer lending operations by acquiring customers at retail
points of sales and its current distribution network stands at 97,000 as at Q1FY20.
Over the years, it has broadened this ecosystem by acquiring customers via other
Bajaj group entities and inking agreements with partners such as Mobikwik, RBL
Bank and Future group. As at Q1FY20, BAF had a customer franchise of 37mn with
highest sequential increase of 2.46mn. BAF’s target segment comprise of mass
affluent class with rising income levels and sizeable consumer discretionary
spends. Led by zero cost EMI facility, unique to credit card offerings by banks, we
expect BAF’s customer addition run-rate to be maintained at 1mn per quarter and
resultantly the franchise is expected to grow at 29% CAGR over FY19-21E.
On higher base, HDFCB network
continues to steadily grow; BAF’s
network scaling up rapidly ->~5x
(FY15-FY19)
.
Zero cost EMIs has been the pillar of
success for the consumer durable-led
retail lending model of BAF
BAF continued to grow its co-branded
wallet business by providing EMI
cards to its customer in digital format.
Launched Rs5000-10000 loans on
co-branded wallet with 242000
disbursal cases in FY19
BAF’s Mobikwik app has 10mn active
users
BAF’s co-branded credit card with
RBL Bank surpassed 1mn cards in
force in a span of <2 years
Bajaj Finance
August 8, 2019 13
Overall affluent customer base to grow @29% CAGR next 2 years
12.916.1
20.1
26.2
34.5
44.8
57.4
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
FY15 FY16 FY17 FY18 FY19 FY20E FY21E
Customer Franchise (Nos in millions)
Source: Company, PL
BAF’s new customer addition largely emerges from existing customer
database through EMI and cross sell franchise. BAF has been able to get repeat
business due to innovation in plain vanilla loan products (of personal loans, CD,
business loans, credit cards, payment solutions) with zero interest payments,
followed by other products that facilitate bullet repayments, zero foreclosure
charges on loans (personal loans), wallet payments and pre-approved limits. (Refer
Annexure B for the detailed overview).
(i) EMI card (Existing Member Identification) franchise: BAF’s EMI card carries
pre-approved loan facility to purchase any durable and lifestyle product as against
a credit card issued by a bank that lets the card holder purchase goods or services
on credit. While credit card comes with higher interest charges with minimum
payment each month, BAF’s EMI card offers pre-approved, interest-free loans with
no/minimal down-payment up to a tenor of 24 months. With manufacturer’s
subvention in place, BAF’s interest-free ÉMI card stands preferable to bank-issued
credit card creating a win-win proposition.
While enviable customer franchise of
34.5mn (36.9: Q1FY20) exists,
current customer wallet share is still
low with huge potential to tap further
BAF aims to be one amongst the top
five credit card issuers
Bajaj Finance
August 8, 2019 14
Economical EMI card rates over bank offerings indicative of EMI card franchise growth visibility is here to stay
For BAF EMI card customer Simple interest
method Declining interest rate
Particulars Comments Cash Flows (Rs.) Cash Flows (Rs.) Cash Flows (Rs.) Cash Flows (Rs.)
Product Value 30,000
Loan Amount 30,000
Tenor 12 months
Processing Fees 3.50%
OEM Commission 8.00%
Interest rate 12.0%
01-Apr-18 Loan Disbursed -30,000 30,000 30,000 30000
01-Apr-18 Proc. Fees @ 3.5% 1,050 -1,050
30-Apr-18 OEM Comm. @ 5% 2,400
01-May-18 Zero Cost EMI 2,500 -2,500 -2800 -2665
01-Jun-18 Zero Cost EMI 2,500 -2,500 -2800 -2665
01-Jul-18 Zero Cost EMI 2,500 -2,500 -2800 -2665
01-Aug-18 Zero Cost EMI 2,500 -2,500 -2800 -2665
01-Sep-18 Zero Cost EMI 2,500 -2,500 -2800 -2665
01-Oct-18 Zero Cost EMI 2,500 -2,500 -2800 -2665
01-Nov-18 Zero Cost EMI 2,500 -2,500 -2800 -2665
01-Dec-18 Zero Cost EMI 2,500 -2,500 -2800 -2665
01-Jan-19 Zero Cost EMI 2,500 -2,500 -2800 -2665
01-Feb-19 Zero Cost EMI 2,500 -2,500 -2800 -2665
01-Mar-19 Zero Cost EMI 2,500 -2,500 -2800 -2665
01-Apr-19 Zero Cost EMI 2,500 -2,500 -2800 -2665
XIRR 25.4% 6.82% 23.6% 12.7%
Source: Company, PL
EMI card targeted towards cross-sell customer franchise with good repayment
history has grown at robust 50% YoY over past three years.
BAF’s strong positioning in credit card market
2Q’16 3Q’16 4Q’16 1Q’17 2Q’17 3Q’17 4Q’17 1Q’18 2Q’18 3Q’18 4Q’18 1Q’19 2Q’19 3Q’19 4Q’19 1Q’20
EMI cards in force (mn) 4.1 5.1 5.5 6.1 6.6 6.8 6.9 9.8 10.2 11.4 12.9 14.2 15.4 16.5 18.7 19.8
% increase YoY 74% 61% 33% 25% 61% 55% 68% 87% 45% 51% 45% 45% 39%
Mobikwik active wallet users (units in mn)
0.47 1.3 2.2 3.3 6.5 8.3 10.0
BAF RBL Credit Card (units in mn)
0.14 0.26 0.38 0.51 0.66 0.85 1.05 1.29
Source: Company, PL
Besides the EMI card, BAF’s cross sell initiatives are also improved by co-
partnering with RBL Bank to offer credit cards. However, competition in the credit
card market from market leaders like HDFC Bank, SBI, ICICI Bank, Axis Bank stay
quite prominent. And this we reckon will be rightly reflected in slight moderation in
yields going ahead for BAF in the consumer finance space.
Cross selling has not only enabled
BAF to generate revenues but also
create a sticky customer database.
Bajaj Finance
August 8, 2019 15
Growing credit card penetration; HDFCB and SBI dominates credit card market
Credit Card market size (as of Mar’19) Total Outstanding
Cards (no. units) Total Transaction
(mn) Transaction per
card (Rs.) Market Share
Cards Market Share
transaction
HDFC Bank 12,486,918 162,177 129,877 26.5% 27.9%
SBI 8,271,446 94,732 114,529 17.6% 16.3%
ICICI Bank 6,645,716 62,338 93,802 14.1% 10.7%
Axis Bank 5,959,857 62,567 104,981 12.7% 10.8%
RBL Bank 1,715,101 16,558 96,540 3.6% 2.9%
CITI Bank 2,710,776 45,253 166,939 5.8% 7.8%
American Express 1,461,191 52,671 360,468 3.1% 9.1%
Total (incl other banks) 47,088,647 580,494 123,277
Source: Company, RBI, PL
(ii) Cross sell franchise: As part of cross sell strategy, BAF focuses on cross
selling more products to the existing customers increasing mind space with them
and in turn strengthen its customer franchise. For instance, the product per
customer in SME lending business inched up from mere 2.7 in Q2FY16 to 5 in
Q1FY18 and BAF aims to step it up to 7-8.
Product per customer has scaled up rapidly especially for SME vertical
Product per customer (12 MOB) Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18
Retail 2.34 2.24 2.17 2.50 2.55 2.62 2.56 2.75 2.42
SME 2.93 2.71 3.06 3.45 3.75 4.28 4.61 5.05 4.98
Source: Company, PL
With products like EMI Card, credit card, insurance distribution, fixed deposits,
mutual funds, etc., BAF has successfully accentuated cross sell initiatives growing
3x over past 4 years. This is in-line with 3x increase in BAF’s overall customer base
from 11mn in 3QFY15 to 35mn in Q4FY19. Cross sell customers are bureau best
customers (refer exhibit 23) filtered post applying credit filters and eliminating
delinquent customers.
Formidable 37mn customer franchise; added 2.5mn customers in Q1FY20 as against historical avg 1mn/Q
Customer Franchise (Nos in millions)
Definition FY15 FY16 FY17 FY18 2QFY19 3QFY19 4QFY19 1QFY20
Cross Sell Franchise Bureau best (750>score) customer base currently with BAF
6.25 8.49 11.00 15.43 17.82 19.69 20.67 21.85
Non-Delinquent Customers Excluding 30+dpd customers 7.32 9.48 12.69 17.22 20.08 22.07 23.26 25.18
Overall Cross Sell Franchise
Customers who can be cross sold BAF products
7.77 10.32 13.67 18.88 22.17 24.29 25.89 28.00
Credit Segment Filter Mass affluent customer base 7.97 10.57 14.38 19.77 23.13 25.30 26.93 29.09
Total Franchise Total mass + mass affluent customer base of BAF
12.89 16.07 20.13 26.22 30.05 32.57 34.48 36.94
Source: Company, PL
Defying competitive challenges, BAF should continue to grow its business and
profitability by banking upon its existing customer and cross-sell franchise. We
expect 29% growth in cross sell franchise with cross sell customer base expected
to grow 1.7 times to 35mn over next two years.
BAF’s co-branded credit card crossed
a milestone of 1 mn cards in force in
<2 years
BAF is associated with 9 different
insurance companies including 3
general and 3 life
Bajaj Finance
August 8, 2019 16
Cross sell customer base to grow 1.7x by FY21E to 35mn
6.3
8.5
11.0
15.4
20.7
26.9
34.4
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
FY15 FY16 FY17 FY18 FY19 FY20E FY21E
(no
s in
mn
)
Source: Company, PL
Capitalizing upon the existing satisfied customer database, proliferation of EMI
card, cross sell franchise and diversified offerings have ensured 30%+ consistent
growth in new customer origination for BAF over the years. The growth in new-to-
BAF customers have increased at 36% CAGR over last three years in line with the
AUM traction. Number of new loans acquired have grown at a 45% CAGR.
Underpinned by BAF’s unique customer offerings, the repeat customer forms closer
to 2/3rd of overall new loans acquired by the company. For Q1FY20, 66% of new
loans were availed by existing customers of BAF.
Repeat customer disbursements up 6x since FY15
2,523 3,666 6,025
9,213
15,227
24,363
37,762
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
FY15 FY16 FY17 FY18 FY19 FY20 FY21
Billio
n
New loans from repeat customers
Source: Company, PL
66% of new loans were availed by
existing customers of BAF in Q1FY20
v/s 60% in FY18
Light on capex and credit costs
friendly, repeat customer base (53%
CAGR) over years continues to boost
incremental RoA.
Bajaj Finance
August 8, 2019 17
Top quartile return profile – edge over other NBFC
Defying market challenges, BAF promises 3.7% RoAs and 20%+ RoEs over next
two years. We believe three key catalysts will enable BAF to maintain such a high
quartile return profile:
(a) Clear customer segmentation (focusing on innovative offerings) for repeat
business
(b) BAF’s high fee income base (~38% of PBT) aided by retail ecosystem built-
up across lending product offerings, payments solutions and e-commerce
platforms.
(c) Spinning off mortgage business into a step-down subsidiary should ensure
maintenance of high order RoAs for BAF.
Clear customer segmentation
Focus on mass affluent customer base, rural affluent customer segment, salaried
mortgage customers and digital driven new age customer focus have ensured clear
customer segmentation which in turn marks consistent revenue traction.
Targeting mass affluent customer: With BAF’s overall customer base standing
at 37mn and the mass affluent market size being 81mn, there remains 44mn
households to be tapped incrementally in the high end side.
Mass affluent household drives consumption
(mass affluent household share to consumption %)
Source: Company, PL
81mn affluent household forms target market for BAF
Household Type based on annual income
No. of household
in 2018 (mn)
No. of households
(10-year CAGR %)
Avg. spend per household
growth rate (%)
Struggler (<Rs 15 lkh income) 67 -2 8.5
Next billion (Rs 1.5-5 lakh income) 129 2 8.5
Aspirer/ Mass affluent (Rs 5-10 lakh income) 57 6 8.5
Affluent (Rs 10-20 lakh income) 24 9 8.6
Elite & above (Rs 20 lakh & > income) 9 13 8.6
Source: Company, PL
Thrust on rural customers: Rural and semi-urban markets are growing at 25%
CAGR and are expected to contribute 50% towards the overall consumer durable
market in the future. With geographic presence across 951 towns and retail
presence across 15,200 stores, BAF stands fully geared to capture the latent
demand arising from the rural consumer market.
17
44
33
610
34
43
13
0
10
20
30
40
50
Struggler Next billion Mass & massaffluent
Elite & above
FY08 FY18
Most businesses in BAF are focused
on acquiring mass affluent customers
representing bigger wallet, larger
cross-sell opportunities and lower risk
Bajaj Finance
August 8, 2019 18
Rural-urban divide aids reduced concentration risks
38%
59% 60% 59%45% 49%
62%
41% 40% 41%55% 51%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
FY14 FY15 FY16 FY17 FY18 FY19
%Rural branches % Urban branches
Source: Company, PL
Focus on salaried mortgage customers: With an objective to combat risks and
provide stability to its balance sheet, BAF formed step-down subsidiary named-
Bajaj Housing Finance Ltd (BHFL) in Q2FY18, to run a full-fledged mortgage
business. Focusing on salaried home loan customer that accounts for 88% of the
mortgage customer base, Q1FY20 witnessed 93% of mortgage customer
acquisition emerging from salaried home loans segment.
Unique mortgage customer profile of new formed BHFL
Product bouquet Focus area Customer profile Leveraging relationships
Home Loan (HL) Developing the B2B business in home loans
Mass affluent and above customer (salaried and self employed)/ rural individual customers
Leveraging existing developer finance relationships, tie-ups with new project launches
Loan against property (LAP) Sell LAP product to existing customers
Mass affluent and above self employed customers/ rural MSME customers
Usage of direct to customer channel facilitated growth, controlled asset quality
Lease Rental discounting (LRD)
Transactions backed by rentals through escrow mechanism
Mass affluent and above customer (salaried and self employed)
Transactions secured by escrow mechanism encouraging LRD business trajectory
Developer finance Offers fresh construction finance and inventory finance
Category A and A+ developers in India (mid-size developers)
Unique developer relation (110 developers) ensure risk based pricing & quality
Source: Company, PL
Focus on new age customer: Data accessibility and data mining should continue
to drive innovation for BAF. With a dedicated analytics team indulged into number
crunching, BAF engages in customer service at various levels through call centres,
IVR, bi-directional SMS, email, online portal, mobile applications and branches.
BAF engages in customer lifecycle mapping aided by analytics models viz,
application scorecards, behavioural scorecards, collection scorecards and fraud
scorecards to boost fee revenue traction. For instance, professional loans in FY18
recorded sturdy 79% YoY growth led by ‘Direct to Customer’ (D2C) and analytics
based model.
BAF has diversified its risk and
portfolio geographically over 1,895
urban and rural locations in India
aiding minimal concentration risks
Bajaj Finance
August 8, 2019 19
Fee-income to assets set to climb to 1.8% by FY21E
With various lending products, payment solutions and e-commerce platforms, BAF
has created an ecosystem that forms a base for substantial fee income. Products
such as BFS Direct, Life Care financing, Zero Cost EMI and Business loans
to CAs, engineers, doctors have enabled customer retention and fee-income
growth.
BAF’s ecosystem revolves around customer lifestyle mapping aiding fee income trajectory
Source: Company, PL
A superior bank-like structure yielding 3%+ RoAs and 20% RoEs can be largely
attributed to BAF’s fee income base (that stood at 38% of PBT in Q1FY20) aided
by customer centricity and strategic partnerships.
Fee-income to PBT at ~39% levels – key revenue
driver for BAF
32.9%
26.4%
28.4%29.9%
33.3%
36.0%
38.4% 38.6%
20.0%
22.0%
24.0%
26.0%
28.0%
30.0%
32.0%
34.0%
36.0%
38.0%
40.0%
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Source: Company, PL
Fee income (as % of assets) to climb to 1.8% over
next 2 years
1.20%
1.00%
1.40%
1.50%
1.30%
1.40%
1.50%
1.60%
1.80%1.80%
1.00%
1.10%
1.20%
1.30%
1.40%
1.50%
1.60%
1.70%
1.80%
1.90%
FY
12
FY
13
FY
14
FY
15
FY
16
FY
17
FY
18
FY
19E
FY
20E
FY
21E
Source: Company, PL
We expect the fee income to assets ratio to climb to 1.8% by FY21E from current
1.6% in turn forming a key revenue driver to RoA expansion to 3.6-3.7% over FY20-
21E.
Fee Income Revenue Streams
Credit Card (Co-branded with RBL)
All Banks
EMI Card (Digital)
BAF Dominance
Payment Wallets
Paytm, Phone Pe, Google pay, UPI
Insurance Cross Sell (Life / General)
All insurance Cos, and distributors like banks
and allied
Consultancy Services (Property Fitness
report/Financial Fitness report/Asset care
products)
BAF Dominance
~15% of BAF’s other income stream
emerge from fee-income from these
value add services and products
Co
mp
eti
tio
n
Co
mp
eti
tio
n
Co
mp
eti
tio
n
Bajaj Finance
August 8, 2019 20
Housing business spin-off: key RoA trigger
A lean opex model, a step-down subsidiary dedicated to housing finance, access
to low cost funding (NHB, ECBs) & low credit costs should prove lucrative for BAF.
While BAF businesses continue to focus on product portfolio & geographies to curb
risk and strengthen profitability, it is also in the process of moving its entire
mortgage business to a dedicated housing finance subsidiary (100% owned) – Bajaj
Housing Finance Ltd. (BHFL) fully operational from February 2018.
With new incremental bookings emerging for BHFL, the existing mortgage balance
sheet will continue to stay in BAF and should run down over a period of time. BHFL
aims to build an asset base of Rs700bn in 5 years from current Rs374bn (consol).
Mortgage business dynamics
Product bouquet Focus area Customer profile ATS (Rs) Avg Loan
tenure (years) LTV % Presence
Home Loan (HL) Developing the B2B
business in home loans
Mass affluent and above customer (salaried and self employed)/ rural individual customers
37lkhs 18 70% 44
Loan against property (LAP)
Sell LAP product to existing customers
Mass affluent and above self employed
customers/ rural MSME customers
27lkhs 11 50% 30
Lease Rental discounting (LRD)
Transactions backed by rentals through escrow
mechanism
Mass affluent and above customer (salaried and
self employed 20crs - - 8
Developer finance Offers fresh construction
finance and inventory finance
Category A and A+ developers in India (mid-
size developers) 15-35cr - - 8
Source: Company, PL
The mortgage AUM mix stands tilted towards home loans (65%) with LAP, LRD
and developers forming 27% of the overall mix. While BAF kick-started mortgage
business with thrust on retail mortgages, as the book grew, the company started
offering construction and inventory finance to category A/A+ developers with ATS
ranged between Rs150-350mn across top 8 cities. With greater thrust on salaried
home loan segment, we expect home loans to contribute as high as 75% to overall
mortgage mix by FY21 with remainder dominated by LRD, cautious LAP and
developer & allied financing.
BAF’s mortgage profile lays emphasis on home loan business since inception
Source: Company, PL
Home Loans
82.5%
LAP17.9%
3QFY18
Home Loans
68.0%
LAP16.0%
Dev eloper Financing
+ LRD
17.0%
FY19
Home Loans
75.0%
LAP14.0%
Dev eloper Financing +
LRD
11.0%
FY21E
Bajaj Finance
August 8, 2019 21
Why BAF would grow in mortgage finance segment?
Industry drivers stand in favor
The 17tn mortgage market grew @ 18% CAGR
over past few years
Source: Company, PL
HFCs continue to drive mortgage credit
Source: Company, PL
Leveraging on BAF customer franchise: BHFL will aim to leverage the existing
25mn non-delinquent customer base of BAF. Cross selling to this credit filtered
quality franchise with differentiated pricing and customer service, BHFL stands
poised to double the mortgage book over 4 years’ time-frame ahead.
Bringing in efficiencies: A housing finance structure enables to operate on a lean
opex model. While housing finance being a plain vanilla lending model, the need
for heavy infrastructure in terms of bigger offices and greater employee count
stands low. However, owing to partial housing business still being generated on
parent BAF’s books, the opex to NII ratio stood elevated at 63% (FY19) for BHFL.
Said that, as the book expands with the complete shift of housing portfolio to BHFL
opex to NII should normalize <50%. Ability to reach out to customers is a key with
minimal need for innovation or disruption, we reckon.
Providing risk and stability: Mortgage business will be aimed to provide risk and
ALM stability (from a long term perspective) in addition to RoA enhancement.
Matched mortgage ALM
114 1
43 164 1
90
254
166
212
216
216
254
0
50
100
150
200
250
300
>1 to 3 yr >3 to 5 yr >5 y to > 7 y >7 y to 10 y > 10 y
(Rs
bn
)
Cumulative Inflow Cumulative Outflow
Source: Company, PL
1.20%
1.00%
1.40%
1.50%
1.30%
1.40%
1.50%
1.60%
1.80%1.80%
1.00%
1.10%
1.20%
1.30%
1.40%
1.50%
1.60%
1.70%
1.80%
1.90%
FY
12
FY
13
FY
14
FY
15
FY
16
FY
17
FY
18
FY
19E
FY
20E
FY
21E
24%
19%
24%21%
23%
19%16%
22%
19%
9%
19%16%
18%
14%16%
12%
0%
5%
10%
15%
20%
25%
30%
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
HFCs Banks Mortgage Credit
With an estimated shortage of ~400
lakh houses in India, next leg of
housing finance credit should be
driven by HFCs operating largely in
low/middle-income group
Mortgage – more of an ALM business
than asset business for BAF
Bajaj Finance
August 8, 2019 22
With no intent to expand RoEs at the cost of quality, BHFL continues to lay greater
thrust on salaried home loan portfolio with almost 93% incremental loan acquisitions
emerging from this perceivable risk-free business.
Reducing funding costs: The cost of borrowings stands substantially low in a HFC
set-up and BHFL can raise funds 20-25bps cheaper than its parent- BAF which
should step-up ROEs and ROAs as a subsidiary.
How housing business spin-off is a win-win both for parent and the sub?
As on Jun’19-end, BHFL’s AUM stood at Rs 217.5bn, it’s ROA improved to 0.4%
(0.0% in Q1FY19) largely led by steady credit costs ranged at 0.0-0.1%. With
combined mortgage book of Rs 374bn (Rs 171bn on BAF’s balance sheet), BHFL
is poised to grow to Rs 681bn full-fledged mortgage asset franchise by FY23E in
our assessment.
BHFL set to become ~Rs680bn asset franchise by FY23E
16 3673
107140
176
307
432
550
681
0
100
200
300
400
500
600
700
800
3Q
FY
18
4Q
FY
18
Q1F
Y19
Q2F
Y19
Q3F
Y19
FY
19
FY
20E
FY
21E
FY
22E
FY
23E
(Rs
bn
)
Source: Company, PL
With mortgage penetration still on lower side, BAF, with greater focus on salaried
retail home credit, has immense potential to tap the insatiated mortgage market
under the newly formed full-fledged HFC business.
HDFC dominates the HFC market, BHFL geared to climb 3 notches higher in next 3 years
4066
1664
1226 1200
623349 339
184 174 116 114 59
0
500
1000
1500
2000
2500
3000
3500
4000
4500
HDFC LICHF IndiabullsHFC
DHFL PNBHF IIFL BAFMortgage+ BHFL
CanFinHomes
Gruhfinance
Edel ABHousing
Finance ltd
AavasFinancier
AU
M (R
s b
n)
Source: Company, PL (Note: Above AUM figures stand for FY19)
Bajaj Finance
August 8, 2019 23
We believe BHFL business stands geared to clock 30bps increase in RoA by FY21
to 1.4% from current 1.1% (FY19) largely led by healthy CAR at 23.17% and healthy
leverage at 6x, opex to NII settling at 50% levels from 60%+ till Q2FY19 and 40%
AUM CAGR over next four years.
Moreover, parent BAF should witness operating leverage benefits flowing in with
hiving-off of a cost intensive, capex heavy housing business into a full-fledged
housing finance entity in turn boosting RoA metrics of the parent company. With
operating leverage playing out with a step-down subsidiary for housing finance in
place, we see parent’s (BAF’s) ROAs to stay at 3.6%-3.7% levels over FY19-21E.
BHFL Business outlook
Particulars FY19 FY20E FY21E Comments
AUM (Rs mn) 1,75,620 3,06,966 4,31,745
YoY Growth 389.3% 74.8% 40.6% Mortgage business growth to stabilize to 40% by FY21
Incremental Book Build up assumption (YoY) 1,39,730 1,31,346 1,24,779
AUM Mix (%)
Home Loans 68.0% 72.0% 75.0% 93% salaried home loan focus to boost home loan share
LAP 16.0% 15.0% 14.0% Cautious stance would imply tad moderation in mix
Developer Financing 17.0% 13.0% 11.0% Granular book with sanctions’ ticket size Rs45-50crs
Customer Composition (%)
Salaried 85.0% 86.0% 87.0%
Self-employed 15.0% 14.0% 13.0% Self-employed exposure reduction prominent
Source: Company, PL
Bajaj Finance
August 8, 2019 24
Well placed in uncertain times
Defying market challenges, BAF continues to grow its market share. This can be
largely attributed to:
(a) Comfortably placed on liquidity (Rs 64bn liquidity buffer)
(b) 60% positive ALM gap maintenance across short-term maturity buckets,
(c) Diversified liability mix (bank borrowings at 35%, sizeable deposits at 16%,
market borrowings 39%),
(d) Diligence on maintaining capital leverage at/below 7x
(e) GNPA maintained below 2% levels over past 5 years backed by cautious lending
corroborated by early paring exposures in beleaguered sectors (infra, LAP, digital)
BAF’s liquidity position
As on FY19, the liquidity position of BAF remains intact corroborated by internal
accruals in form of loan repayments of Rs98bn (FY19), liquidity buffer to the tune
of Rs63bn in the form of cash and liquid investments as at Jun’19-end.
Despite tough liquidity situation since the ILFS crisis broke out in Sep’18, BAF
succeeded in adding 2.5mn customers incrementally in the tough quarter of
Q1FY20 maintaining >1mn customer acquisition rate during entire FY19 which
forms a strong base for business visibility. While the sequential book addition has
turned cautious, yet the AUMs climbed 1.2 times from Rs 1099bn in Q3FY19 to Rs
1289bn in Q1FY20.
BAF’s matched ALM position
ILFS crisis has forced NBFC’s for reality check on their ALM’s. BAF, in our opinion,
will continue to stand firm on the ALM structure with matched tenures both on asset
and liability sides given the company’s natural hedge of ALM. BAF’s diversified
product portfolio across tenors ranging from 1 month to 240 months with borrowings
obligations intact from smaller buckets till 5 years.
BAF's diversified product profile - tenor-wise
Tenor Loan product
1 month Purchase Order and Retailer finance
3 months EMI spends financing
8 months B2B
12 months loan against securities
24/36 months 2wheeler, Personal loans, unsecured SME
60 months Commercial Lending
180-240 months Mortgages
Source: Company, PL
With Rs 63bn liquidity on balance
sheet, BAF stands geared to sail
through tough times by maintaining
market positioning
Bajaj Finance
August 8, 2019 25
Positive ALM across years
Particulars (Rs mn) FY15 FY16 FY17 FY18
FY19
Cum Assets 315,317 437,898 617,574 816,717 1159,410
Cum Liabilities 267,050 370,423 492,736 615,670 1159,390
Gap 48,267 67,475 124,838 201,047 20
Source: Company, PL
BAF maintains average 39% positive ALM gap for 1-month bucket and 29%
cumulative positive gap in 12month bucket as at the end of Jun’19 which is quite
above -15% regulatory threshold. This not only protects BAF from volatile liquidity
conditions but has also strengthened its market position in current environment.
BAF well positioned on ALM than peer set
Gap as % of Liability (FY19) 1 Month 3-6 Months 6 M -1 Year 1-3 Years
CIFC 27.27% 25.31% 13.53% 6.59%
LTFH 198% 33.0% 63.0% *
BAF 51% 79% 57% 35%
Source: Company, PL, *Note: LTFH data available only till 1 year
BAF’s diversified funding structure
BAF’s liability structure has undergone a meaningful change over the past few
years with expansion in AUMs. While traditionally BAF’s borrowings skewed
towards bank term loans, however with expansion in low ticket retail consumer
durable lending, market borrowings too inched higher. While these CD loans largely
have a short tenure, BAF continues to maintain well matched ALM as:
BAF’s LAS business functions as a natural hedge with sizeable prepayments
from HNIs.
BAF maintains 4-6% of its total balance sheet as cash and cash equivalents
which is expected to increase to ~8% as the balance sheet size increases.
BAF has been the biggest beneficiary of the recent ECB guidelines (January
16th, 2019) as now both BAF and BHFL stand eligible to raise USD 750mn
each.
Bank term loans and NCDs continued to contribute highest at 34% and 35%
respectively to the overall funding mix and deposits component has grown from
mere 1% in FY14 to 16% today.
BAF’s current fixed deposit book at Rs151bn that grew 55% YoY in Q1FY20
forming 13% of consolidated balance sheet and is geared to expand to 17% by
FY20 and ~30% over next three years.
To increase investments in new
channels to grow deposits, BAF
started offering fixed deposit
schemes to rural customers aiding
expansion in retail liabilities
Bajaj Finance
August 8, 2019 26
Diversified borrowing mix- bank/mkt borrowings dominate
1% 4% 6% 8% 12% 15% 14% 15% 16%
58% 54% 48%35% 31%
34% 32% 34% 34%
25% 33% 38%40% 43% 35% 36% 38% 35%
3%4% 3%
7% 6% 5% 5% 5% 4%13% 5% 5% 10% 8% 11% 12% 8% 11%
0%
20%
40%
60%
80%
100%
FY
14
FY
15
FY
16
FY
17
FY
18
Sept'18
Dec'1
8
Mar'19
June'1
9
Deposits Bank loans (incl CC/OD/WCDL)
NCD Subordinate Debt
Short term borrowing
Source: Company, PL
BAF’s deposit augmentation v/s top player in the NBFC space
Deposits as a % of Liabilities FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 1QFY20
BAF 0% 0% 1% 4% 6% 8% 12% 15% 16%
HDFC Ltd 26% 33% 31% 32% 31% 31% 29% 29% 30%
Source: Company, PL
BAF’s diligence on capital leverage
While historical RoEs have been maintained north of 20%, BAF yet continues to
remain conscious by maintaining capital leverage threshold limit at/below 7.0x. The
exhibit below elucidates BAF’s capital raise program each time the leverage limit
hit closer to 7x.
Rs 79bn capital augmentation over past 10 years
Period Capital amt. (Rs bn) Instrument
Sep'17 45 QIP
Nov’16 4.08 Conversion of Warrants of Bajaj Finserv
Jun’15 14 QIP
Mar’13 7.44 Rights Issue
Dec’12 0.85 Conversion of Warrants of Bajaj Finserv
Mar’12 3.05 Conversion of Warrants of Bajaj Finserv
Jul’07 0.51 Conversion of Warrants of Bajaj Auto
Mar’07 0.72 Conversion of Warrants of Bajaj Auto
Feb’07 4.09 Rights Issue
Overall Capital raise 79.74
Source: Company, PL
With capital leverage closer to 7x already (6.6x), we incorporate Rs 40mn capital
raise into our FY20 estimates.
Bajaj Finance
August 8, 2019 27
Capital sufficiency and restricted leverage bodes well
17.5
22
19.218
19.5 20.3
24.7
20.7
6.45.3 6.2 6.8 6.3 6.6
5.4 6.3
0
5
10
15
20
25
30
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Tier 1 (%) Tier 2 (%) CRAR (%) Leverage Ratio (x)
Source: Company, PL
BAF’s impeccable asset quality (<2% GNPA maintained)
Post the poor asset quality show during FY07-10 owing to high stress in the two-
wheeler financing and computer financing business, BAF realigned its portfolio
strategy with 1) great thrust on safer products like LAP and mortgages 2) extensive
usage of CIBIL scores and 3) focus on repeat customer base and on affluent &
mass affluent customers with steady repayment pattern. Robust data analytics that
throw early warning indicators, strong risk management team (segregation of risk
and credit functions), rigorous portfolio review mechanism (pared down
infrastructure, construction equipment and grew cautious on digital product finance
business) has enabled BAF to achieve <2% GNPA since FY12.
BAF exhibits impeccable asset quality trends: <2% GNPA maintained despite AUM growing @ 30%+ CAGR
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E
AUM Growth 58.8% 87.8% 73.1% 33.6% 37.4% 34.7% 36.5% 36.1% 36.9% 40.6% 34.7% 28.4%
GNPA % 4.89% 3.81% 1.16% 1.09% 1.18% 1.51% 1.23% 1.68% 1.41% 1.54% 1.69% 1.82%
Source: Company, PL
Over the past five years, BAF has exhibited significant improvement with GNPAs
hovering below 2% levels despite book growing 6 times during the same period.
The credit cost (i.e. provisions as percentage of loans) also declined from 8.1% of
advances in FY10 to 1.2% by FY13 and 1.6% as on FY16. In FY19, loan loss
provisions to AUM stood at 1.30%.
Under INDAS, the ECL (Expected credit loss) categorization also spells out
controlled asset quality for BAF with Stage 3 assets standing below 2% levels and
Stage1&2 ranged between 0.85-0.90% over past one year. ECL as proportion of
total assets have stood ranged between 1.75%-1.85% over past one year.
BAF’s strategy of ‘acquire and cross-sell’ to manage cost and portfolio risk is largely
underscored by the fact that existing customer poses significantly lower credit risk
than a new customer. Credit cost of these customers are 0.15-0.33x that of a new
customer base.
In FY2017, BFL developed a real-
time machine learning based fraud
analytics model replacing traditional
score based model
Fintech models like aplication score
card, bureau score card, fraud check
that spell qualitative aspects of
customer’s credit enable stable asset
quality
Mere 6bps spike in NPA on
sequential basis in Q1FY20 despite
challenging environment post ILFS
crisis
Bajaj Finance
August 8, 2019 28
Resilient asset quality metrics – Q1FY20 saw slight deterioration as commercial lending/LAP saw slip-ups
ECL Summary Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20
Stage 3 assets 1.63% 1.41% 1.39% 1.49% 1.55% 1.54% 1.60%
ECL Provision % Stage 1 & 2 assets 0.94% 0.89% 0.90% 0.89% 0.88% 0.85% 0.86%
Coverage Ratio % Stage 3 assets 65% 70% 69% 65% 60% 60% 61%
ECL / Total assets 1.99% 1.86% 1.84% 1.89% 1.81% 1.75% 1.82%
Source: Company, PL
Segmental asset quality remains robust: Across business segments, BAF has
demonstrated superior asset quality with declining GNPA trends over past two
years. The SME businesses had shown increased delinquencies immediately after
the GST roll out which has stabilized in recent periods. Rural business has
observed structurally lower NPAs.
No sharp deterioration in asset quality despite challenging times
Business wise GNPA 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20
Consumer Business 2.26% 2.10% 2.12% 2.09% 2.31% 2.38% 2.16% 2.26% 2.44%
SME Business 1.91% 1.89% 1.82% 1.31% 1.84% 1.88% 1.75% 1.49% 1.69%
Commercial Business 0.05% 0.04% 0.03% 0.00% 0.00% 0.00% 0.00% 0.64% 0.24%
Rural Business 0.75% 0.85% 1.09% 1.17% 1.25% 1.26% 1.20% 1.45% 1.54%
Source: Company, PL
The Company’s net NPA at 0.6% is one of the lowest in the NBFC industry. This
was despite the fact that the portfolio quality of BAF’s mortgage businesses was
under pressure owing to the stressed real estate market and elevated competition
in the segment.
BHFL’s ECL Stage 3 under control
BHFL/Mortgage business ECL Summary Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20
Stage 3 assets 0.00% 0.02% 0.03% 0.05% 0.06%
ECL Provision % Stage 1 & 2 assets 0.14% 0.13% 0.14% 0.15% 0.16%
Coverage Ratio % Stage 3 assets 33% 24% 25% 36% 35%
ECL / Total assets 0.14% 0.14% 0.15% 0.17% 0.18%
Source: Company, PL
ILFS and rural B2C biz led to spike in absolute GNPAs in Q3
Credit quality - GNPA Q1FY19 Q4FY19 Q1FY20
Consumer B2B -Auto Finance Business 5.70% 5.12% 5.19%
Consumer B2B - Sales Finance Businesses 1.03% 1.05% 1.16%
Consumer B2C Businesses 1.67% 1.40% 1.63%
Rural B2B Business 0.82% 0.93% 0.97%
Rural B2C Business 1.31% 1.53% 1.63%
SME Business 1.87% 1.49% 1.64%
Commercial Lending Business - 0.64% 0.61%
Mortgages 0.55% 1.23% 1.19%
Overall GNPA 1.39% 1.54% 1.60%
Source: Company, PL
Co. tightened underwriting standards
in digital product financing in urban
and rural, SME and auto finance
businesses on account of patchy
macro environment
Q1FY 20 observed absolute
slippages increase by 84% YoY
Delinquency stood at 2.3%, credit
costs climbed to 1.8%.
Products such as 2-W/3-W financing,
digital product financing, personal
loans cross-sell and rural lending B2B
saw sequential uptick in PAR 30 dpd
Bajaj Finance
August 8, 2019 29
Q1FY20 witnessed BAF shifting two businesses; namely, 2-wheeler financing and
digital product financing to yellow from green zone on prudency grounds in
anticipation of worsening macros. Hence, company also plans to prune down the
bottom 12-15% customers in these portfolios exercising conservatism.
Barring LAP, all business verticals have been performing well across buckets
Product wise % of No-Due/Current Customers % of Due Customers - 1 DPD onwards % of Due Customers - 30 DPD onwards
FY16 FY17 FY18 FY19 Q1’20 FY16 FY17 FY18 FY19 Q1’20 FY16 FY17 FY18 FY19 Q1’20
Consumer Durable 98.1% 97.8% 98.9% 98.7% 98.5% 1.9% 2.2% 1.1% 1.3% 1.5% 1.7% 1.4% 0.7% 0.8% 0.9%
2-Wheeler & 3-Wheeler 89.9% 85.7% 88.8% 90.2% 88.7% 10.1% 14.3% 11.2% 9.9% 11.3% 4.8% 6.8% 5.6% 4.7% 5.3%
Lifestyle Finance 98.3% 97.3% 98.7% 98.5% 98.2% 1.7% 2.7% 1.3% 1.5% 1.9% 0.9% 1.7% 0.8% 0.8% 1.0%
Digitial Finance Portfolio 96.9% 97.3% 98.5% 98.3% 97.7% 3.1% 2.7% 1.5% 1.7% 2.3% 2.1% 1.7% 0.9% 1.0% 1.5%
Personal Loan Cross Sell 97.3% 97.3% 97.6% 97.8% 97.5% 2.7% 2.7% 2.4% 2.2% 2.5% 1.4% 1.4% 1.3% 1.2% 1.4%
Salaried Personal Loan 99.5% 99.5% 99.7% 99.7% 99.7% 0.5% 0.5% 0.3% 0.3% 0.3% 0.3% 0.3% 0.2% 0.2% 0.3%
Small Business Loan 98.8% 98.4% 98.7% 98.8% 98.6% 1.2% 1.6% 1.3% 1.3% 1.4% 0.7% 0.9% 1.0% 0.9% 1.0%
Loan Against Property 99.2% 99.2% 99.2% 97.7% 97.7% 0.8% 0.8% 0.8% 2.4% 2.3% 0.7% 0.7% 0.8% 2.3% 2.2%
Home Loans 99.0% 99.0% 99.5% 99.5% 99.4% 1.0% 1.0% 0.5% 0.5% 0.6% 0.7% 0.9% 0.2% 0.4% 0.4%
Rural Lending 98.9% 99.2% 99.1% 99.1% 98.8% 1.1% 0.8% 0.9% 0.9% 1.2% 0.6% 0.7% 0.6% 0.7% 0.8%
Source: Company, PL
1/5th of the BAF employee base has
been deployed for collection activity
across country
Bajaj Finance
August 8, 2019 30
Financial Analysis
BAF AUMs to grow at 31% CAGR over next two years
The company has grown its asset under management (AUM) at a robust pace
clocking 46% CAGR over FY10-18 largely led by a strong 47% CAGR in consumer
lending followed by 36% CAGR in SME lending business segments. Commercial
and rural lending businesses that kick-started full-fledged in FY14, recorded 27%
and 82% business CAGR respectively over past four years. While maintaining a
diversified AUM mix, consumer business forms 40%, remainder 60% share stands
contributed by non-consumer businesses (SME lending at 37%, commercial
lending at 15% and rural 8%). Although a part of rural lending, consumer durables/
lifestyle loans form a meaningful share in rural lending.
We expect BAF’s AUM to grow at 31% CAGR over FY19-FY21 led by 1) continuous
product offerings & technology led innovation; 2) proliferation of cross-selling
franchise (currently ~60% of total customer franchise) and instant EMI card finance
3) effective use of advance analytical capabilities 4) calculated geographical
expansion and 5) robust risk management practices.
Expect 31% AUM CAGR over FY19-FY21E
131
175
241
324
442
602
824
1159
1561
2004
73%
34%37%
35% 36% 36% 37%41%
35%28%
0%
10%
20%
30%
40%
50%
60%
70%
80%
0
500
1000
1500
2000
2500
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E
AUM (bn) Growth
Source: Company, PL
Despite acute challenges of demonetisation, RERA and GST over FY17-FY19, the
total customer base witnessed 1.6x increase led by healthy 1.7x increase in cross
sell customer base during the same period.
Customer & AUM traction expected to grow ~30% next 2 years
Key Parameters FY16 FY17 FY18 FY19 FY20E FY21E
Cross Sell Franchise Growth 36% 30% 40% 34% 30% 28%
Total Customer Franchise Growth 25% 25% 30% 32% 30% 28%
AUM Growth 36% 36% 37% 41% 35% 28%
PAT Growth 42% 44% 36% 60% 31% 33%
Source: Company, PL
Strong execution continues for BAF
with Q1FY20 witnessing robustness
across product segments barring
slight moderation in consumer B2B
and commercial lending
Bajaj Finance
August 8, 2019 31
BAF maintains highest AUM/loan traction
Loan/AUM Growth YoY FY15 FY16 FY17 FY18 FY19 FY20E FY21E
SHTF 11% 23% 8% 22% 13% 14% 15%
LTFH 18% 23% 8% 28% 19% 16% 17%
MMFS 8% -1% 16% 15% 26% 15% 16%
CIFC 10% 17% 15% 26% 27% 18% 18%
HDFC 16% 14% 14% 21% 12% 16% 17%
LICHF 19% 16% 16% 15% 16% 15% 16%
HDB Financial services 42% 29% 40% 30% 32% 30% 30%
BAF 35% 36% 36% 37% 41% 33% 29%
Source: Company, PL
Change in mix to compress NIM’s by 60bps over FY19-21
BAF’s NII traction has always followed AUM momentum translating into healthy
NIMs at 11% over past five years.
Largely NII growth has tracked AUM growth
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E
NII Growth 39% 33% 30% 27% 39% 41% 32% 46% 33% 27%
AUM Growth 73% 34% 37% 35% 36% 36% 37% 41% 35% 28%
Source: Company, PL
As at the end of FY19, BAF’s NIM’s stood at ~11.3% which is at top rung among
NBFCs. This is largely a function of costs of funds deceleration (8.7% in FY17 to
7.9% in FY19) despite the turmoil in the NBFC space. BAF’s access to funding from
money markets (Rs 107bn: BAF, Rs 45bn: BHFL), banks (Rs 47bn term loans: BAF,
Rs 14bn: BHFL), retail and corporate depositors remained intact despite continued
challenges faced by NBFCs in Q4FY19. Q1FY20 also saw consistent liability
structure with least impact on the company’s ability to borrow while other NBFCs
facing continued challenges, we model 8.4-8.6% cost of funds over FY20-21E.
Sustenance of market share particularly in core consumer business and emphasis
on higher yielding rural business should ensure yields at 15% over FY20-21E.
While spreads stand of high order, incorporating rising share of lower yielding
products (housing/SME/rural loans), curbing of select portfolio disbursements on
grounds of prudency and maintenance of higher liquid assets on balance sheet, we
expect 60bps NIM compression to 10.7% over FY19-21.
Robust ALM, deepening liability
profile and strong pricing power has
enabled favourable positioning for
BAF in tight interest rate environment
Strong parentage, balance sheet
liquidity sufficiency and healthy
profitability has enabled stable
funding costs
Bajaj Finance
August 8, 2019 32
Yields to stabilize at 15%
19.3
%
19.1
%
18.2
%
18.1
%
18.0
%
17.7
%
16.2
%
16.5
%
15.4
%
15.0
%
13.0%
14.0%
15.0%
16.0%
17.0%
18.0%
19.0%
20.0%
Blended Yields
Source: Company, PL
CoF to stay at 8.6%
8.8
%
10.3
%
9.6
%
9.7
%
9.2
%
8.7
%
7.9
%
7.9
% 8.4
%
8.6
%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0% CoFs
Source: Company, PL
NIMs to soften; settle to <11% levels by FY21E
13.7%
12.3%
11.8%
11.1%
11.4%
11.8%
11.4%
12.0%
11.6%
11.2%
11.0%
11.5%
12.0%
12.5%
13.0%
13.5%
14.0%
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E
NIM
Source: Company, PL
Scope for operating leverage continues to stay
During the period FY12-18, AUM CAGR came at 36% while operating expenses
grew at 33% CAGR as the company continued to invest in infrastructure,
technology, data and employee strength. Economies of scale have improved BAF’s
cost metrics over past few years. Cost to income ratio for BAF has declined from
46% in FY14 to 35.3% in FY19, as high growth and efficiency in operations have
reduced costs. However, we estimate a cost to income ratio at 35% for FY20 due
to sustained spends on 1) technology 2) rising employee base 3) distribution and
4) increasing presence in home loan segment. The same should decline to 33% by
FY21 as the company concludes the mortgage transition to the step-down
subsidiary.
With rise in fixed-rate borrowings and
a stable ALM structure, NIMs should
stabilize by FY21.
Bajaj Finance
August 8, 2019 33
Economies of scale leading to cost-income…
44.7%46.0%
45.1%43.1%
41.5%40.1%
35.3%35.4%
32.8%
30.0%
33.0%
36.0%
39.0%
42.0%
45.0%
48.0%
FY
13
FY
14
FY
15
FY
16
FY
17
FY
18
FY
19
FY
20E
FY
21E
Cost to income ratio
Source: Company, PL
…and cost to average asset metric improvement
5.3% 5.2%
4.8% 4.7% 4.7%4.5%
4.0% 4.0%
3.6%
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
FY
13
FY
14
FY
15
FY
16
FY
17
FY
18
FY
19
FY
20E
FY
21E
Cost to Average Assets %
Source: Company, PL
Technology related expenses: BFL’s commitment to technological improvement
is reflected in its IT investments, which accounted for 2-4% of operating expenses
over FY12-FY17 or 4-5% of PAT over the same period. BAF is on the forefront of
technology usage amongst NBFC’s and banks which has not only increased its
efficiency but also growth rates. While last few years observed significant branch
and technology investments, the benefits should begin kicking in in next two years.
Continuous investment in IT & of highest order
151 209
295 379 580
928
1389
1645
1735
1840
0.13%0.13% 0.13%
0.13%
0.14%
0.17%
0.19%
0.16%
0.12%
0.10%
0.07%
0.09%
0.11%
0.13%
0.15%
0.17%
0.19%
0.21%
0
300
600
900
1200
1500
1800
2100
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E
Information Technology Expenses ITE to Average Assets (RHS)
Source: Company, PL
Employee related expenses: Despite employee base and employee costs
growing 4x and 5x respectively over past 5 years, the profitability per employee
stands well in comparison with the top lender.
Bajaj Finance
August 8, 2019 34
Despite higher employee roll-out, BAFs output per employee is at par with HDFC Bank (Update)
Number Of Employees YoY growth Employee Cost (Rs mn) PAT (Rs mn) PAT/ Employee (x)
BAF
FY15 5,058 70.6% 4,507 8,979 1.78
FY16 7,394 46.2% 6,296 12,785 1.73
FY17 11,479 55.2% 9,317 18,365 1.60
FY18 15,266 33.0% 14,336 24,964 1.64
FY19 20,500 34.0% 19,409 39,950 1.95
HDB Financial Services
FY15 10,476 38% 3,122 3,495 0.33
FY16 16,508 58% 4,938 5,344 0.32
FY17 65,906 299% 18,967 6,988 0.11
FY18 74,049 12% 22,283 9,330 0.13
FY19 93,373 26% 25,517 11,532 0.12
HDFC Bank
FY15 76,286 11.9% 47,510 1,02,159 1.34
FY16 87,555 14.8% 57,022 1,22,962 1.40
FY17 84,041 -4.0% 64,837 1,45,496 1.73
FY18 87,983 4.7% 68,057 1,74,867 1.99
FY19 98,061 11.5% 77,618 2,10,785 2.15
Axis Bank
FY15 42,230 -0.4% 31,150 73,578 1.74
FY16 50,135 18.7% 33,760 82,237 1.64
FY17 56,617 12.9% 38,919 36,793 0.65
FY18 59,614 5.3% 43,130 2,757 0.05
FY19 66,768 12.0% 47,473 46,766 0.70
ICICI Bank
FY15 66,327 -8.2% 47,499 1,11,753 1.68
FY16 72,175 8.8% 50,023 97,263 1.35
FY17 82,841 14.8% 57,337 98,011 1.18
FY18 81,548 -1.6% 59,140 67,775 0.83
FY19 82,363 1.0% 68,082 33,633 0.41
Source: Company, PL; Note: HDB FIN SVCS employee no. stands exponentially higher owing to amalgamation with ADFC & HBL
While historically cost metrics have remained on higher side as the company
continued to foray into newer segments and geographies, going ahead, with
economies of scale in mortgage and rural business catching up due to sustained
AUM growth trajectory and variable costs stabilizing, operating leverage benefits
will flow through. Against this backdrop, we expect opex-AUM should decline to
3.7% in FY21 from higher levels of 6% in FY13.
Expect C-I at 33%, opex-assets at 3.7% for FY21
47%45% 46% 45%
43%41% 40%
35% 35%33%
6.5%
5.6% 5.5%5.1% 5.0% 4.9%
4.6%4.2% 4.2%
3.7%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E
Opex to NII Opex to AAUM (RHS)
Source: Company, PL
Opex growth on annual basis stands
lower to AUM growth YoY
Bajaj Finance
August 8, 2019 35
Healthy asset quality sustains despite robust growth
In spite of robust growth in AUM in last five years, company has been able to
maintain healthy asset quality. Evidently, impeccable underwriting process,
adequate checks with scores and substantial data analytics on the proprietary data
collected by them over many years, gives BAF an edge over the competition. We
continue to see <2% GNPAs over next two years as ECL provisioning also remains
under control.
BAF has sustained less than 2% GNPAs since 2012
1.2%1.1%
1.2%
1.5%
1.2%
1.7%
1.4%1.5%
1.7%1.8%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
1.6%
1.8%
2.0%
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E
GNPA %
Source: Company, PL
Strong show on earnings
Earnings growth for BAF have stood at 47.5% CAGR for past three years on the
back of (a) avg 40% YoY growth in NII led by avg 37% AUM growth (b) Pricing
power- avg 11% NIMs despite mortgage thrust and higher liquid assets on balance
sheet in FY19) and (c) Prudent asset quality (steady 1.2-1.6% GNPA past three
years).
Expect 32% earnings CAGR over next two years
46 7
9 13 18 25 40 52 69
65%
45%
22%25%
42% 44%
36%
60%
31% 33%
0%
10%
20%
30%
40%
50%
60%
70%
0
10
20
30
40
50
60
70
80
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E
PAT (bn) Growth
Source: Company, PL
Responding to market challenges,
underwriting standards in digital
product financing, SME and B2C
financing business and auto financing
have been tightened (Q1FY20)
Overall GNPAs for FY19 stood at
1.5% and for Q1FY20 at 1.6%; still
below industry averages.
BAF continued to focus on product
granularity across geographies to
reduce risk and augment profitability.
FY19, therefore, witnessed better
margins, lower operating expenses
and improved risk metrics
Bajaj Finance
August 8, 2019 36
Du-Pont analysis- Estimate 3.7% RoA and 20% RoE over FY19-21
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 Q1FY20 FY20E FY21E
Net Interest Income to Average Total Assets 12.55% 11.67% 11.11% 10.50% 10.79% 11.31% 11.08% 11.35% 7.64% 11.05% 10.75%
Other Income to Average Total Assets 0.08% 0.11% 0.19% 0.12% 0.10% 0.05% 0.02% 0.02% 0.01% 0.11% 0.11%
Total revenues to Average Total Assets 12.63% 11.78% 11.29% 10.62% 10.89% 11.36% 11.10% 11.37% 7.66% 11.16% 10.86%
Operational expenses to Average Total Assets 5.93% 5.26% 5.20% 4.79% 4.69% 4.71% 4.46% 4.02% 2.68% 3.96% 3.56%
Operating Profit to Average Total Assets 6.70% 6.52% 6.10% 5.83% 6.19% 6.65% 6.64% 7.35% 4.98% 7.21% 7.30%
Provisions to Average Total Assets 1.37% 1.12% 1.17% 1.29% 1.34% 1.48% 1.40% 1.44% 1.14% 1.61% 1.56%
ROA - PBT 5.34% 5.39% 4.93% 4.55% 4.85% 5.17% 5.24% 5.91% 3.84% 5.60% 5.74%
Return on Assets 3.60% 3.66% 3.25% 3.01% 3.16% 3.37% 3.40% 3.82% 2.48% 3.65% 3.72%
Average Equity to Average Total Assets 6.4 5.7 5.8 6.5 6.6 6.7 5.9 5.9 6.3 5.6 5.4
Return on Equity 24.12% 22.05% 19.58% 20.43% 21.09% 22.43% 20.05% 22.48% 23.56% 20.61% 20.12%
Source: Company, PL
Bajaj Finance
August 8, 2019 37
Superior Valuations justified
Bajaj Finance is among the few NBFCs to foster a business model that enabled it
to grow at a robust pace, significantly faster than some of its peers, making it the
second largest retail customer franchise without a banking licence. BAF’s consumer
lending business model stands difficult to replicate given the challenges pertaining
to build-up of distribution franchise and innovate products suiting varied consumer
needs. Not only BAF has combatted these challenges but has sustainably delivered
best-in-class performance with respect to growth on back of three key cornerstones:
Product innovation and AUM traction: BAF’s best-in-class NIM and AUM
traction has been result of continuous product innovation and offerings growing
each year.
Product launch history Up till FY08 FY09 & FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY17 FY18 FY19
CD financing Business Loan Construction equipment
finance EMI CARD
Lifestyle Product financing
CRISIL SME Rating
MSME Rural Lending
E-commerce - Seller finance
Co-branded Credit Card (RBL Bank)
Co-branded Credit Card (RBL Bank)
General vendor
financing
Specialty chemicals
lending
2W&3W financing
Loan Against Shares
Promoters LAS - Retail
Co-branded Credit Card
Home loans - Salaried
Consumer Finance
Fitness report
Property fitness report
Urban gold loans
Ecommerce - Consumer Finance
Ecommerce - Consumer Finance
Unsecured WC
Used car financing
Personal Loan Cross Sell
Vendor Financing
Home loans - Self Employed
Infra financing Lease Rental Discounting
General insurance distribution
Digital Product Finance
SME Financial Fitness report
EMI Card - Retail Spends
EMI Card - Retail Spends
Home loan rural
Gold Loans
Life Insurance Distribution
Extended warranty cross
sell
Professional Loans
Retailer
financing
Corporate Finance Business
Co-branded
Wallet
Secured enterprise loans in
SME
LAP Salaried Personal
Loans
Consumer Rural lending
Light
Engineering Business
LRD in SME
Relationship Management
Financial Institutions
Lending Business
Health
Insurance Distribution
Life Care Financing
Secured enterprise
loans in rural
Financial Fitness Report
Auto
Component Mfg. Lending
4 5 3 6 3 5 3 7 3 3 4 7
Source: Company, PL Consumer SME Rural Commercial Fee products
BAF’s business performance vis-à-vis product launch history
Parameters FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
No. of Products added 5 3 6 3 5 3 6 3 4 7
Margins 21.6% 17.6% 13.7% 12.3% 11.8% 11.1% 11.4% 11.8% 11.4% 12.0%
AUM Growth 59% 88% 73% 34% 37% 35% 36% 36% 37% 41%
RoA 2.3% 3.7% 3.6% 3.7% 3.2% 3.0% 3.1% 3.2% 3.2% 3.5%
Source: Company, PL
Asset quality: Led by effective risk-pricing strategy, robust distribution model
aided by impeccable data analytics, and conservative underwriting BAF’s credit
costs remain under control supportive of earnings.
Capital sufficiency: BAF's comfortable capital levels and its strong market
position drive the company’s ratings. The strong capital position is supported
by high margins, low dividend pay-outs and periodic capital infusions with
conscious maintenance of leverage below 7 times continue to support rapid
growth.
Bajaj Finance
August 8, 2019 38
Robust growth coupled with sustainable ROE
Parameters (bn) FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Balance sheet 45.9 85.2 129.3 178.1 246.2 327.8 469.7 619.4 848.0 1242.3
Growth 52% 86% 52% 38% 38% 33% 43% 36% 33% 47%
Asset Under Management 40.3 75.7 131.1 175.2 240.6 324.1 442.3 601.9 824.2 1158.9
Growth 59% 88% 73% 34% 37% 35% 36% 36% 37% 41%
Earnings 0.9 2.5 4.1 5.9 7.2 9.0 12.8 18.4 25.0 39.9
Growth 164% 176% 65% 45% 22% 25% 42% 44% 36% 60%
PPoP 3.9 5.7 7.6 10.5 13.5 17.4 25.1 36.2 48.7 76.8
Growth 84% 45% 32% 39% 28% 29% 44% 44% 35% 58%
Return on Equity 8.0% 19.7% 24.1% 22.0% 19.6% 20.4% 21.1% 22.4% 20.1% 22.5%
Source: Company, PL
With customer franchise of 36.94mn, cross sell franchise of 28mn, 97,000+ point of
sales and asset base of Rs1289bn makes BAF as the best play in the retail
financing space.
BAF’s RoE gap v/s peers only widens thus commanding higher valuation multiple
Valuations AUM/Loan book (bn) RoA RoE NIM P/ABV
‘18 ‘19 ‘20E ‘21E ‘18 ‘19 ‘20E ‘21E ‘18 ‘19 ‘20E ‘21E ‘18 ‘19 ‘20E ‘21E ‘18 ‘19 ‘20E ‘21E
BAF 824 1,159 1,561 2,004 3.4% 3.8% 3.6% 3.7% 20.1% 22.5% 20.6% 20.1% 11.4% 12.0% 11.6% 11.2% 12.1 9.9 6.5 5.3
CIFC 314 406 483 570 2.3% 2.3% 2.3% 2.2% 19.6% 21.0% 21.3% 19.7% 6.5% 5.9% 6.0% 6.1% 4.9 3.8 3.2 2.7
HDFCB 5546 6583 8194 9751 1.8% 1.8% 1.9% 2.0% 18% 16% 16% 17% 4.2% 4.2% 4.3% 4.4% 5.6 4.2 3.7 3.2
HDFC 3,574 4,008 4,641 5,409 2.9% 2.2% 2.3% 2.1% 19.3% 15.3% 17.3% 17.4% 3.0% 3.0% 3.1% 3.1% 5.8 5.2 5.0 4.6
HDB Financial services
443 547 711 925 2.3% 2.3% 2.0% 2.11% 16.6% 17.4% 16.9% 20.1% 7.3% 6.8% 6.0% 6.0% * * * *
Source: Company, PL, Note: *HDB Financial services is an unlisted entity
BAF’s digital initiatives, strong customer franchise and strong cross-selling abilities
are expected to yield greater dividends going forward. We expect BAF to deliver
healthy return ratios - RoA at 3.3%, RoE at ~20%, GNPA at <2% over FY19-21E.
With strong growth momentum at 31% CAGR in AUM, PAT CAGR of 32% in FY19-
21E, BAF’s premium valuations (5.3x P/BV, 28.1x P/E FY21E) are expected to
sustain. Recommend BUY.
BAF’s premium valuation stay
EPS (Rs) Adj. Book Value (Rs.) P/E (x) P/ABV (x) ROE % ROA (%)
‘18 ‘19 ‘20E ‘21E ‘18 ‘19 ‘20E ‘21E ‘18 ‘19 ‘20E ‘21E ‘18 ‘19 ‘20E ‘21E ‘18 ‘19 ‘20E ‘21E ‘18 ‘19 ‘20E ‘21E
BAF 43.4 69.3 87.6 116.3 269.5 329.2 503.3 614.9 75.2 47.2 37.3 28.1 12.1 9.9 6.5 5.3 20.1 22.5 20.6 20.1 3.4 3.8 3.6 3.7
CIFC 11.7 15.2 18.6 20.7 55.7 71.0 86.3 102.4 23.2 18.0 14.7 13.2 4.9 3.8 3.2 2.7 19.6 21.0 21.3 19.7 2.3 2.3 2.3 2.2
LTFH 6.4 11.2 10.6 13.3 50.7 59.7 71.1 83.7 15.0 8.6 9.0 7.2 1.9 1.6 1.4 1.1 13.9 18.0 14.6 15.6 1.6 2.3 1.9 2.1
HDFC 66.7 55.9 67.4 70.5 373.1 420.0 433.1 474.6 32.6 38.9 32.3 30.9 5.8 5.2 5.0 4.6 19.3 15.3 17.3 17.4 2.9 2.2 2.3 2.1
LICHF 39.7 48.1 51.6 58.9 271.5 289.2 294.3 335.1 12.4 10.2 9.6 8.4 1.8 1.7 1.7 1.5 15.9 16.0 15.8 16.6 1.2 1.3 1.2 1.2
MMFS 18.0 25.3 19.5 18.1 123.3 123.9 162.6 176.9 16.4 11.7 15.2 16.4 2.4 2.4 1.8 1.7 13.1 15.2 10.4 8.9 2.2 2.6 1.5 1.1
SHTF 112.3 113.4 160.1 178.4 504.4 607.3 767.4 929.2 8.9 8.8 6.2 5.6 2.0 1.6 1.3 1.1 20.5 17.5 20.6 18.8 3.0 2.5 3.2 3.1
Source: Company, PL
Bajaj Finance
August 8, 2019 39
BAF trades at higher P/B band
1.2
2.2
3.2
4.2
5.2
6.2
7.2
8.2
Jul-15
Jan-1
6
Jul-16
Jan-1
7
Jul-17
Jan-1
8
Jul-18
Jan-1
9
Jul-19
P/ABV 3 yr avg. avg. + 1 SD avg. - 1 SD
Source: Company, PL
BUY for TP at 3,860; valued at 6.9x
PT calculation and upside
Fair price - EVA 3,030
Fair price - P/ABV 4,690
Average of the two 3,860
Target P/ABV 6.9
Target P/E 37.9
Current price, Rs 3266
Upside (%) 18%
Dividend yield (%) 1%
Total return (%) 19%
Source: Company, PL
Bajaj Finance
August 8, 2019 40
Annexures:
Key strategic partnerships
BAF’s long-time built partnerships provides competitive edge, customer franchise acceleration & growth
Particulars Partner group Benefits for BAF Benefits for the customers
Co-branded Credit Card
RBL Bank Offered to existing customers of BAF, enable cross sell opportunities
No-cost EMI card at POS, accelerated rewards for high savings, no interest on cash withdrawals up to 50 days.
Digital EMI Card Bajaj Finserv Wallet App
Enables cross selling for consumer durable/digital product
Allows bills payments, ticket bookings, deals redemption, all purchase payments, interest-free payments, easy online EMI card accessibility
Online Wallet & Payments App
MobiKwik
‘network effect’ of complementary payments (through Mobikwik e-wallet) and e-commerce (own online marketplace) businesses
-
Co-branded EMI Network Card
Future Group Cross sell opportunities strengthening franchise
Instant card generation through Bajaj Finserv Wallet app for Future group outlets, no cost EMI (amount ranging from 5000 to 1.15lac from 3 to 24 months.
SME/SSI Credit Rating services
Crisil Cross selling to the SME customer base
Preferential access to SME/SSI Credit Rating services with minimal documentation, quick processing; concessional rating fee
EMI Network Card Ruby Hall Clinic Cross selling for durable/personal loans
Financing of all lifecare needs (upto Rs0.45mn) at Ruby Hall Clinic (160+ treatments; 3 hospitals)
EMI Network Card Makemytrip / Yatra
cross sell opportunities Booking of air tickets and hotel at No Cost EMIs (12 months, >Rs4500)
EMI Network Card Amazon / Flipkart / Paytm-Mall
Cross selling to the existing consumer
No Cost EMI (>Rs4500, 12 months)
EMI Network Card Papperfry Cross selling to the existing consumer
No Cost EMI offerings, zero down payment, (5 months, >Rs 7,500).
Life / Health Insurance
Bajaj Alliance Life / HDFC Life / Future Generali Life / Bajaj Allianz General / Tata AIA General / Max Bupa Health
Enables cross selling Easy application process at no cost EMIs
Source: Company, PL
Bajaj Finance
August 8, 2019 41
Key Technological Initiatives
Adoption of newer/ emerging technologies with customers’ needs and preferences as a focal point
Year Technological Initiatives Utility factor Objective
FY18 Enterprise Data Warehouse (EDW)
Cloud based Enterprise Data Warehouse (EDW) processes and analyses complex data at a very large scale enabling quicker processing of very large data workloads.
Cross sell
FY18 Intelligent natural-language processing based BOT solution
Enhancement of its self-service mechanisms which provides customers self-servicing options.
Customer service
FY18 Net Promoter Score
Measuring outcomes at different life stages of customers, thus enabling it to objectively address areas of improvement thus strengthening customer loyalty process
Customer service
FY18 Mobikwik partnership
Enabling BFL to provide both debit and credit engagement tools for its existing customers. As a first step, the Company has launched a digitised EMI card for its existing and new customers in October 2017.
Customer service
FY17 Machine learning infrastructure
Facilitated fraud detection models, propensity-based lead management prioritisation and natural language based customer email reading capability and its allocation.
Operational efficiency - Fraud management
FY17 security governance framework/Security Operations Centre
Tackling growing cyber security risks. Operational efficiency
FY16 Mobile APP - Decision Support System (DSS) for unsecured SME businesses
Enabling acquistion of new customers in the Consumer Durable business and a new Customer Relationship Management for its Relationship Management business.
Customer service & operational efficiency
FY16 Disaster Recovery (DR) data Ensuring business continuity for customer acquisition, loan processing and servicing
Operational efficiency
FT14 Setting up of call centres, IVR, bi-directional SMS, email, online portal, mobile applications and branches.
Facilitating customers multi-channel engagement options
customers multichannel options - Customer service
FT14 Tie up with UIDAI - First NBFC Accessibility to the e-KYC customer database improving customer experience and business growth
Customer service & operational efficiency
FY13 Direct Cash Collection model & Kisan Mitra product for farmers
customers with no banking habits, Facilitation of loan repayments by using a cash repayment mode; repayments of instalments are synchronised to realisations from crops.
Customer service & operational efficiency
FY12 India’s fastest online personal loans facility allows the customer to obtain an approval for a loan up to Rs 15 lakh in 15 minutes using a digital medium.
Customer service & operational efficiency
Source: Company, PL
Channel checks corroborate BAF’s CD dominance:
Leveraging on the first mover advantage initiative over more than a decade, Bajaj
Finance has stood synonymous with consumer durable and lifestyle financing
business nationwide. Our channel checks of Croma store sin city suggest 60%
of floor sales stand financed by BAF followed by HDFC Bank and Capital First.
60% of Croma floor sales stand financed by BAF
Financier Scheme
Files/cases closure Credit
appraisal Rejection
Rate ATS
Bad cases per month
Incentive (INR / file)
Comment Per day
Diwali (12 days)
Diwali month
HDFC Bank
5% cash back (mainly on
Samsung/LG products)
- - - CIBIL
score:750 50% 5 to 6 75
Most Stringent credit evaluation process
Capital First
3-month downpayment, 7
month EMI 1 5 -
CIBIL score:750
50% 10000 10 to 15 100 TAT for first time
customer stands lengthy
Bajaj Finance
- - 183 (as
against 109 in 2017)
453 (as against 263 a year ago)
CIBIL score:750
50% 10 75
Issuance of BAF cards, BAF cardholders largely
contributed to incremental Diwali sales Stringent process (CIBIL > 750)
Source: Company, PL
Bajaj Finance
August 8, 2019 42
Income Statement (Rs m)
Y/e Mar FY18 FY19 FY20E FY21E
Int. Inc. / Opt. Inc. 1,27,444 1,84,851 2,50,554 3,18,623
Interest Expenses 46,139 66,236 92,224 1,18,141
Net interest income 81,305 1,18,615 1,58,330 2,00,482
Growth(%) 32.0 45.9 33.5 26.6
Non-interest income 124 167 1,574 2,050
Growth(%) (52.1) 34.1 844.3 30.3
Net operating income 81,429 1,18,782 1,59,904 2,02,533
Expenditures
Employees 14,336 19,409 26,235 31,652
Other Expenses 17,333 21,126 27,603 31,659
Depreciation 1,021 1,442 2,825 3,159
Operating Expenses 32,690 41,977 56,663 66,471
PPP 48,739 76,805 1,03,241 1,36,062
Growth(%) 34.6 57.6 34.4 31.8
Provisions 10,305 15,014 23,013 29,051
Profit Before Tax 38,434 61,792 80,228 1,07,011
Tax 13,471 21,842 27,950 37,573
Effective Tax rate(%) 35.0 35.3 34.8 35.1
PAT 24,964 39,950 52,278 69,438
Growth(%) 35.9 60.0 30.9 32.8
Balance Sheet (Rs m)
Y/e Mar FY18 FY19 FY20E FY21E
Source of funds
Equity 1,150 1,154 1,194 1,194
Reserves and Surplus 1,57,328 1,95,817 3,09,179 3,78,616
Networth 1,58,478 1,96,970 3,10,372 3,79,810
Growth (%) 75.1 24.3 57.6 22.4
Loan funds 6,65,572 10,15,879 11,92,337 15,70,077
Growth (%) 30.8 52.6 17.4 31.7
Deferred Tax Liability - - - -
Other Current Liabilities - - - -
Other Liabilities 23,932 29,476 45,605 77,703
Total Liabilities 8,47,983 12,42,325 16,22,963 21,06,957
Application of funds
Net fixed assets 4,703 6,948 7,046 8,201
Advances 7,91,025 11,25,128 15,60,707 20,03,605
Growth (%) 42.7 42.2 38.7 28.4
Investments 31,395 85,990 30,403 38,795
Current Assets 3,397 3,487 10,046 35,311
Net current assets 3,397 3,487 10,046 35,311
Other Assets 17,464 20,771 14,761 21,045
Total Assets 8,47,983 12,42,325 16,22,963 21,06,957
Growth (%) 36.9 46.5 30.6 29.8
Business Mix
AUM 8,24,220 11,58,888 15,60,707 20,03,605
Growth (%) 36.9 40.6 34.7 28.4
On Balance Sheet - - - -
% of AUM - - - -
Off Balance Sheet - - - -
% of AUM - - - -
Profitability & Capital (%)
Y/e Mar FY18 FY19 FY20E FY21E
NIM 11.4 12.0 11.6 11.2
ROAA 3.4 3.8 3.6 3.7
ROAE 20.1 22.5 20.6 20.1
Source: Company Data, PL Research
Quarterly Financials (Rs m)
Y/e Mar Q2FY19 Q3FY19 Q4FY19 Q1FY20
Int. Inc. / Operating Inc. 42,559 43,921 46,514 51,013
Income from securitization - - - -
Interest Expenses 15,673 17,857 19,132 21,134
Net Interest Income 26,886 26,063 27,382 29,879
Growth (%) 42.6 18.9 41.1 18.3
Non-Interest Income 404 23 8 70
Net Operating Income 27,290 26,086 27,390 29,950
Growth (%) 41.8 18.8 40.8 16.2
Operating expenditure 9,466 10,717 11,336 12,298
PPP 17,491 14,958 15,646 17,022
Growth (%) 38.6 53.4 39.3 118.1
Provision 3,146 4,508 4,093 5,507
Exchange Gain / (Loss) - - - -
Profit before tax 14,345 16,357 18,116 18,514
Tax 5,110 5,761 6,356 6,562
Prov. for deferred tax liability - - - -
Effective Tax Rate 35.6 35.2 35.1 35.4
PAT 9,235 10,596 11,761 11,953
Growth 54 54 57 43
AUM
10,02,170
10,99,30
0
11,58,88
0
12,88,98
0
YoY growth (%) 37.9 40.9 40.6 41.2
Borrowing 3,25,505 8,08,620 4,66,813 9,44,620
YoY growth (%) (35.7) 49.8 (25.2) 40.1
Key Ratios
Y/e Mar FY18 FY19 FY20E FY21E
CMP (Rs) 3,266 3,266 3,266 3,266
EPS (Rs) 44.5 69.4 89.1 116.3
Book value (Rs) 282.5 342.0 528.9 636.4
Adj. BV(Rs) 276.4 329.7 512.1 614.9
P/E(x) 73.4 47.1 36.7 28.1
P/BV(x) 11.6 9.6 6.2 5.1
P/ABV(x) 11.8 9.9 6.4 5.3
Asset Quality
Y/e Mar FY18 FY19 FY20E FY21E
Gross NPAs(Rs m) 11,600 17,327 26,376 36,466
Net NPA(Rs m) 3,500 7,088 9,989 12,823
Gross NPAs to Gross Adv.(%) - - - -
Net NPAs to net Adv.(%) 0.4 0.6 0.6 0.6
NPA coverage(%) 69.8 59.1 62.1 64.8
Du-Pont
Y/e Mar FY18 FY19 FY20E FY21E
NII 11.1 11.3 11.1 10.7
NII INCI. Securitization 11.1 11.3 11.1 10.7
Total income 11.1 11.4 11.2 10.9
Operating Expenses 4.5 4.0 4.0 3.6
PPOP 6.6 7.3 7.2 7.3
Total Provisions 1.4 1.4 1.6 1.6
RoAA 3.4 3.8 3.6 3.7
Avg. Assets/Avg. net worth 0.2 0.2 0.2 0.2
RoAE 20.1 22.5 20.6 20.1
Source: Company Data, PL Research
Bajaj Finance
August 8, 2019 43
Price Chart
Analyst Coverage Universe
Sr. No. Company Name Rating TP (Rs) Share Price (Rs)
1 Capital First UR - 495
2 Cholamandalam Investment and Finance Company BUY 322 260
3 Edelweiss Capital NR - 276
4 HDFC BUY 2,270 2,125
5 L&T Finance Holdings Accumulate 178 120
6 LIC Housing Finance Accumulate 550 496
7 Mahindra & Mahindra Financial Services Accumulate 527 396
8 Shriram Transport Finance BUY 1,481 1,063
PL’s Recommendation Nomenclature
Buy : >15%
Accumulate : 5% to 15%
Hold : +5% to -5%
Reduce : -5% to -15%
Sell : < -15%
Not Rated (NR) : No specific call on the stock
Under Review (UR) : Rating likely to change shortly
765
1512
2258
3004
3750
Au
g -
16
Feb
- 1
7
Au
g -
17
Feb
- 1
8
Au
g -
18
Feb
- 1
9
Au
g -
19
(Rs)
Bajaj Finance
August 8, 2019 44
ANALYST CERTIFICATION
(Indian Clients)
We/I, Ms. Shweta Daptardar- MBA-Finance Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.
(US Clients)
The research analysts, with respect to each issuer and its securities covered by them in this research report, certify that: All of the views expressed in this research report accurately reflect his or her or their personal views about all of the issuers and their securities; and No part of his or her or their compensation was, is or will be directly related to the specific recommendation or views expressed in this research report.
DISCLAIMER
Indian Clients
Prabhudas Lilladher Pvt. Ltd, Mumbai, India (hereinafter referred to as “PL”) is engaged in the business of Stock Broking, Portfolio Manager, Depository Participant and distribution for third party financial products. PL is a subsidiary of Prabhudas Lilladher Advisory Services Pvt Ltd. which has its various subsidiaries engaged in business of commodity broking, investment banking, financial services (margin funding) and distribution of third party financial/other products, details in respect of which are available at www.plindia.com.
This document has been prepared by the Research Division of PL and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of PL. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security.
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