Last updated: 27 Oct, 2021 | 04:19 am
Net profit in-line: Bajaj Finance has reported a 49% year-on-year jump in net profit to Rs 1,306 crore for Jul-Sep 21 period. On a consolidated basis, net profit increased Rs 1,481 crore Y-o-Y. Analysts had earlier estimated a consolidated net profit of about Rs 1,440 crore for the period between July and September.
Net interest income increase - An NBFCs primary business is to borrow money and lend the same at a rate higher than the rate at which they borrowed. The income generated from this differential is known as net interest income. This is an extremely important number to truly find out as to how much a company is earning from its core operations. Standalone net interest income for Bajaj Finance increased 26% over the preceding year to Rs 4,920 crore. The consolidated NII increased by 28% to Rs 5,335 crore from Rs 4,162 crore in the last quarter. Consolidated AUM rose to Rs 1.67 lakh crore from Rs 1.37 lakh crore, an increase of 22% year-on-year.
Asset Quality improves: The consolidated gross NPA ratio for Q2FY22 stood at 2.45%. It was 2.96% for the period between July and September. The net NPA ratio stood at 1.1%, an improvement of 36 basis points sequentially.
Bajaj Finance reported loan losses and provisions for the quarter at Rs 1,300 crore. Stage 2 assets (overdue by 60 - 90 days) reduced sharply in Q2FY22 to Rs 5,962 crore from Rs 7,425 crore from the June quarter. The company restructured loans worth Rs 426 crore in the second quarter.
If there is no third wave, the company expects gross NPA between 1.7 and 1.8 percent and net NPA ratio at 0.7 and 0.8% by the end of the current financial year.
Business Growth - All the businesses under Bajaj Finance did extremely well in the second quarter. Bajaj Housing Finance portfolio increased by 32% Y-o-Y and the home loan book was up by 29%. The consumer B2C business increased by 19% Y-o-Y. Rural sales and Sales finance businesses grew by 80% and 59% respectively. The commercial lending business was up by 50%, while auto finance contracted 15% Y-o-Y.
Liquidity health: Bajaj Finance said that its cost of funds reduced to 6.77% in Q2 FY22 vs 7.11% in Q1 FY22. The Company raised ₹ 6,772 crore of fixed rate NCDs in 2 year and above tenor to gain from the low interest rates environment. This included ₹ 2,327 crore raised under 10 year tenor. As a result, the liquidity buffer was elevated at ₹ 16,842 crore as of 30 September 2021. Liquidity buffer will normalize to pre-COVID levels by Q4 FY22, according to the company’s estimates.
Increase in customer base: Customer franchise stood at 52.80 million as of 30 September 2021, a growth of 20% YoY. During the quarter, customer franchise grew by 2.35 million. Customer franchise addition in Jul-Sep 21 was in line with the company’s general guidance of 7-8 million annually.
Growth in Deposits: 8. Deposits book on a YOY basis grew by 33% to ₹28,720 crore as of 30 September 2021. Its contribution to consolidated borrowings was 20%. Retail : Corporate mix stood at 77 : 23 in Q2 FY22. This is in-line with the company’s strategy of reducing its reliance on corporate deposits.
Guidance: The company has guided for AUM growth in the corridor of 25%-27% over the long-term. It has also maintained a robust guidance for profit growth in the range of 23%-24%. The company has retained its long-term guidance for Gross NPAs at 1.4% to 1.7%. Bajaj Finance expects to report a Return on assets in corridor of 4%-4.5% (up from 3- 3.35%), and Return on equity in corridor of 19%-21%.
Bajaj Finance quarterly results review
Bajaj Finance has reported a decent set of numbers in Jul-Sep 21 period, aided by improvement in strong core income. The company has also seen an improvement in its auto finance NPAs (21% absolute decline QoQ; GNPA % at 16% vs 19% (Q1FY22)). It has also seen healthy recoveries in the quarter. It has also made healthy provisions with the Provision Coverage Ratio improving to 55% from 51% earlier.
The core AUM registered highest on-year growth during the quarter. The business mix was largely steady. Barring the auto segment, all segments witnessed a healthy AUM growth. The company has also announced several new initiatives, which will help it to continue to post healthy topline and bottomline numbers going forward. The company is further expected to see an improvement in its asset quality, aiding its margin in the upcoming quarters.
Bajaj Finance Q2 results: Brokerage take
Global brokerage firm Morgan Stanley expects earnings momentum to pick up significantly. The brokerage noted that decibels around the new digital initiatives will also pick-up from here. While the valuations are not cheap, the stock seldom pauses against such a healthy backdrop. The research house has maintained an ‘Overweight’ call on the stock with a target price of Rs 9,060.
JP Morgan has meanwhile maintained a ‘Neutral’ rating on the stock with a target price of Rs 6,800 per share. The research firm noted that Credit Cost guidance has been maintained, even as the asset quality improved. The loan growth has picked up, and the outlook is equally encouraging.
Prabhudas Lilladher noted that as operating leverage improves, Bajaj Finance’s cost-income will decline, leading to slight estimates tweaking for FY23-24. As BAF stands geared to foray into a new credit cycle (26% AUM CAGR over FY22-24) backed by strong balance sheet, robust collections framework and digital transformation, the brokerage has reiterated its ‘Buy’ recommendation on the stock. Premium valuations are here to stay as Bajaj Finance is now perceived as a profitable fintech lender, noted the research house. The target price remains largely unchanged at Rs 9,092 (earlier Rs 9,096).