Bajaj Finance: At new peak, aiming higher

Diversification and cost rationalisation will ensure profitable growth

Bajaj Finance’s leadership position in the niche consumer durables finance business has helped it sustain growth. Besides consumer durables,  the company’s strong brand equity and business acumen are the key drivers for the growth. What’s more, the management remains confident and has forecast an assets under management (AUM) growth of about 25 per cent and net profit growth of 20 per cent for 2015-16.

The company recently raised Rs 1,400 crore via qualified institutional placement, which should provide fuel for growth, including into new segments, over the next two to three years. Healthy trends in asset quality and strong execution of cross-selling its products and services to existing customers are key strengths, and will help drive profitable growth for Bajaj Finance.

The market has already sensed the future, given that Bajaj Finance’s stock has out-performed the S&P BSE Sensex in the past few months.

Even as its core business of consumer finance (40 per cent of AUM) remains resilient in both growth and asset quality parameters, the company is looking to diversify further into rural markets and commercial lending. The diversification will add further growth drivers to its robust kitty. Bajaj Finance also aims to increase mining of its existing customers (six-seven million, excluding two-wheelers segment) for this purpose, which in turn will reduce both customer acquisition costs and asset quality risks going forward.

Second, the company is looking to rationalise direct selling agent (DSA) commissions which form a major chunk of operating expenses in the small and medium enterprises (SME) segment. The SME segment forms about 50 per cent of Bajaj Finance's AUMs and constitutes key segments such as LAP (loan against property) and home loans. LAP and mortgage together contribute 39 per cent to the company's AUMs. Going forward, Bajaj Finance aims to directly approach/identify the target customer, and eliminate the DSA intermediaries, by using the data of credit bureaus and high-end analytics. This will push up the return on equity ratio of low-profit segments such as LAP from 12 per cent to about 15 per cent, estimate analysts at Credit Suisse.

Despite operating in segments that are perceived risky, its asset quality is amongst the best in the industry with gross non-performing assets ratio of 1.4 per cent and net NPA at 0.4 per cent in FY15.