Bajaj Finance: Signs of full-blown recovery aren't convincing enough

Pace of new customer addition up in Q4, though new loans acquired lags year-ago level

Usually, the Street tends to cheer Bajaj Finance’s quarterly performance updates. But when on late Monday evening, the country’s largest consumer loans lender published numbers for the March 2021 quarter (Q4), there was little reaction on the bourses in Tuesday’s trade. 

On the whole, with Bajaj Finance posting 4 per cent YoY growth in assets under management, or AUM (Rs 1.53 trillion, up 6 per cent sequentially) and better than Q3’s flat AUM growth, the performance is quite reasonable, considering that the lender is also on a wait-and-watch mode. AUM growth exceeded expectations and hence, Q4 results, too, could better the previous quarter’s showing, say analysts. “AUM growth pick up has been one of the key debates regarding Bajaj Finance and we think Q4 numbers can swing investor sentiments positively,” note analysts at Morgan Stanley.

However, a closer reading into the numbers suggests it may be too optimistic a view. For instance, 5.5 million new loans acquired in Q4 trail the Q3 figure by 9 per cent and the year-ago level by 8.8 per cent. This suggests two things — one, sustenance of customer sentiment and buying interest after the festive season hasn’t been possible for the system and Bajaj Finance, in particular, and second, even if there is a normalisation in demand for credit, FY22 may continue to lag a normal demand cycle as seen prior to FY20. The silver lining is that Bajaj Finance may have gradually increased its pace of customer addition. With 2.3 million new customer additions in Q4, up 3 per cent sequentially and 21 per cent YoY, the lender is slowly shedding its cautiousness on the market. 

However, given the gap between new loans and new customers added, whether the ticket size of new loans has gone under the knife to keep pace with the creditworthiness of the new customers is something that needs clarity. Another interesting aspect is that perhaps because of the moratorium until September last year and the restructuring option available to customers, the share of loans lent to existing customers (or cross-selling) has reduced to 58 per cent in Q4, down from 64 per cent in Q3 and 68 per cent last year. Again, whether this is because of impairment of creditworthiness of the existing customer pool or Bajaj Finance wanting to cut back on cross-selling needs to be seen. 

With some doubts persisting, analysts at Credit Suisse feel Bajaj Finance can revise its credit cost guidance upwards of 1.6-1.7 per cent in FY22. They expect loan growth to slow to 21 per cent, against 35 per cent seen in the past. Management commentary expected on April 27 will be keenly watched by the Street.