Bajaj Finance's (BFL) scrip has outperformed the BSE Sensex in recent months, giving a whopping 116% return in the past one year.
After hitting a new 52-week high of Rs Rs 2,812.85 on 1 October, the scrip marked a new high of Rs 3,375 on 17 November and is showing no signs of cooling down.
BFL enjoys strong leadership position in a niche, under penetrated consumer durables finance segment, which has enabled it to deliver strong financial performance on a sustained basis. This is one reason behind its rally on the bourses.
Consumer finance (2/3 wheeler loans, consumer electronics loans and lifestyle financing) forms about 40% of the Assets Under Management (AUM) for BFL and has grown at a healthy pace in the past 8-10 quarters. In the September 2014 quarter as well, this segment posted 34% AUM growth despite de-growth in two and three wheeler loans.
Strong asset quality and return ratios, focus on cross-selling to different products are other reasons for the street's bullish stance on the scrip.
Competitive intensity in the consumer durables (electronics, furniture, etc) finance is quite low, with no major NBFC having a strong presence in this segment. Most banks as well have indirect exposure to this segment via products bought on credit cards. This gives BFL a significant edge and its focussed approach in this segment will fuel further growth.
While lifestyle products financing is a relatively newer segment as of now, BFL management believes this segment has the potential to grow multi-fold and will be a seperate segment for the company going forward. BFL added 3,000 new customers in this segment in the quarter and plans to acquire about 0.5 million customers in FY16.
The consumer finance market in India is under-penetrated and forms just 12% of India's GDP versus 23% in China and 97% in the US, thus offering huge growth potential for BFL.
BFL also plans to focus on SME (small and medium enterprises) segment going forward and expanding its geographical reach to include more rural areas. In this backdrop, most analysts remain positive on BFL.
Slower than expected economic recovery and intensifying competition in the housing finance, retail and SME finance segments are key risks facing the company.
BFL may need to raise capital frequently to support growth which may lead to higher dilution in the longer term, believe analysts. Company's strategy of launching new products (such as doctor loans, lifestyle loans) regularly has paid off well so far and will be an additional enabler to future growth. The company continues to enjoy strong asset quality and the trend is likely to sustain in the future as well. Analysts expect BFL's net profit to grow at 18-20% over the next two years and return ratios to be stable in this period.