Bajaj Finance sees healthy growth

September quarter results are strong, but the coming festive demand holds key

Strong revenue growth, healthy asset quality, and higher ‘other income’ helped Bajaj Finance's net profit in the quarter ended September. The net profit grew 41.7 per cent year-on-year to Rs 279 crore, ahead of Bloomberg estimate of Rs 260 crore. Consumer lending grew 42 per cent year-on-year to Rs 15,691 crore. It was the key driver of revenue in the quarter. This business includes consumer durables financing, and two- and three-wheeler financing, amongst others. The small and medium enterprises (SME) segment grew 46.9 per cent to Rs 17,820 crore. Its assets under management (AUM) grew 36 per cent to Rs 37,964 crore. Expansion in rural areas, commercial lending, and home loans will drive growth. The company remains confident of delivering healthy growth. "If the festive season is good, our asset growth should be 30 to 35 per cent," said Rajeev Jain, chief executive and managing director, Bajaj Finance. Notably, the company has managed to grow its AUM at 30 per-cent-plus levels every quarter over the past five years.

Higher provisioning helped reduce gross non-performing assets (NPA) and net NPA ratios in the quarter. Provisions surged 32 per cent sequentially and 71 per cent year-on-year, as it made accelerated provisions for stress in one of its infrastructure accounts and a few mortgage clients. Barring these instances, the management remains confident on asset quality. The company’s gross NPA as well as net NPA ratios remained largely stable at 1.7 per cent and 0.5 per cent, respectively. While the company does not share the net interest margin figure, it remains confident of maintaining margins, despite falling interest rates. This is because half of its loans are on a fixed-interest-rate basis. This helps compensate the fall in interest rates on its floating loan book. Apart from healthy revenue growth, net profit was also aided by a two times year-on-year growth in ‘other income’ to Rs 21 crore. ‘Other income’ largely comprises of fee income and is witnessing good growth, in line with overall asset growth.

The stock surged six per cent to Rs 5,306 on Tuesday. The Sensex fell of 0.2 per cent. Most remain positive on Bajaj Finance, given its leadership position in consumer durables lending, good earnings, and stable assets. But the valuation of 3.4 times FY17 estimated book value is at a premium to its own historical average one-year forward price/book value ratio of 1.8 times. Analysts believe the premium is likely to sustain on consistent performance.