Bajaj Finance: Q1 disappoints, but its outperformer tag likely to stay

The Street will likely monitor the NPA ratios that surged in the June quarter

Bajaj Finance Limited (BFL), a leading NBFC with a wide footprint declared Q1, 2021-22 results, which were below expectations with higher NPAs. The advisory says, in the absence of a Third Wave, growth will rebound to pre-covid levels.

The consolidated operating revenue of Rs 6,741 crore is marginally better YoY than Rs 6,648 crore in Q1, 2020-21 and marginally lower QoQ than Rs 6,850 crore in Q4, 2020-21. Consolidated results include results of subsidiaries Bajaj Housing Finance (BHFL) and Bajaj Financial Securities (BFinsec).

Profit before tax was Rs 1,366 crore, which was again, marginally better YoY than Rs 1,310 crore, and 25 per cent lower QoQ than Rs 1,823 crore. PAT was at Rs 1,002 crore which was 4.16 per cent higher YoY than Rs 962 crore and down 25.6 per cent QoQ versus Rs 1,347 crore. While impairment came to Rs 1,750 crore, versus Rs 1,686 crore YoY and Rs 1,231 crore QoQ, financing costs dropped to Rs 2,254 crore versus Rs 2,498 crore (YoY) and rose QoQ versus Rs 2,196 crore. Net Interest Income has grown YoY at 8 per cent.

Consolidated Assets Under Management (AUM) are at Rs 1.59 trillion (includes IPO financing receivables of Rs 2,942 crore) versus Rs 1.38 trillion YoY. BFL booked 4.63 million new loans during Q1 FY22 and acquired 1.88 million new customers. The Opex to NII ratio for Q1 FY22 was 30.6 per cent versus 27.9 per cent in Q1 FY21 and both quarters were depressed due to Covid. This ratio should normalise to around 33 per cent assuming no major Third Wave.

BFL took accelerated write offs of Rs 113 crore of principal outstanding on account of Covid-19 stress. It holds a macro provision of Rs 483 crore. The Gross NPA and Net NPA ratios to AUM stood at 2.96 per cent and 1.46 per cent respectively, against 1.40 per cent and 0. 50 per cent YoY and 1.79 per cent and 0.75 per cent as of 31 March 2021. Auto Finance was the worst hit with GNPA doubling to Rs 2,426 crore. The provisioning coverage ratio is 51 per cent on stage 3 assets.

BFL continued to expand geographically during the quarter. The AUM breakup shows exposure increased in the rural space, with Rural B2B and Rural B2C up by 39 per cent and 22 per cent, respectively. BFL also issued more loans against securities (up 59 per cent) and mortgage lending is up 11 per cent. It has reduced exposure to Auto Finance (down 11 per cent). Consumer B2C (Rs 31,399 crore) and SME Lending (Rs 20,335 crore) are the two largest segments after Mortgages (Rs 51,107 crore). The Deposit book stands at Rs 27,972 crore, which is YoY growth of 39 per cent.

Despite the drop in asset quality, capital adequacy is strong at 28.57 per cent with Tier-1 capital at 25.41 per cent. The company projects AUM growth at 25-27 per cent with PAT growth at 23-24 per cent and RoA at 3.3-3.5 per cent and RoE at 19-21 per cent. (RoA is return on asset; RoE is return on equity). GNPA should reduce to 1.4-1.7 per cent as the economy normalises. This will be the most-watched ratio.

The stock lost about 2.5 per cent in the last 30 days and it dropped 0.9 per cent after results. It’s likely to remain a highly-valued outperformer in the NBFC sector.