Bajaj Finance declines over 1% as Q4 profit dips 19% YoY; recovers later

Shares of Bajaj Finance dipped 1.6 per cent to Rs 1,935.45 in the intra-day trade on the BSE on Wednesday after the non-bank finance company's (NBFC's) net profit contracted for the first time in six years, down 19.4 per cent year-on-year (YoY) to Rs 948 crore, on the back of higher provisioning. Core profit before tax (PBT; before provisions) growth was, however, strong at 45 per cent YoY. Adjusted for Covid-19 provisions, PAT was up 38 per cent YoY. 

The stock, however, pared the loss and bounced 4.5 per cent off day's low to hit an intra-day high of Rs 2,023.50 apiece on the BSE. At 9:57 am, the stock was ruling 1 per cent higher at Rs 1,988.7, as against a 1.04 per cent, or 315 points, jump in the S&P BSE Sensex at 30,511.37 level. A combined 4.72 million shares have changed hands on the NSE and BSE till thw time of writing of this report. 

The NBFC major set aside provisions worth Rs 1,954 crore in Q4FY20 as against Rs 409 crore in Q4FY19. 

“During the quarter, the company has taken an accelerated charge of Rs 390 crore for two identified large accounts, an additional provision of Rs 129 crore on account of recalibration of its ECL model and a contingency provision of Rs 900 crore for Covid-19. Adjusted for these additional provisions of Rs 1,419 crore, loan losses and provisions for Q4FY20 was Rs 535 crore,” Bajaj Finance said in a statement.

The amount set aside against standard assets rose to Rs 856 crore in Q4, from Rs 34 crore a year ago. A moratorium has been extended very cautiously and based on internal assessment, customers whose loans could turn into non-performing assets (NPAs) have not been given this facility. Thus, only 27 per cent of the loan book came under moratorium.

According to the management, the NBFC lost 10 productive days in Q4FY20 due to the coronavirus pandemic and the consequent lockdown. This resulted in lower acquisition of nearly 1 million loan accounts and lower assets under management of around Rs 4,500 crore. New loans booked during the quarter rose 3 per cent to 6.03 million from 5.83 million in Q4FY19. "Adjusted for lower acquisition due to lockdown, new loans booked would have grown by 21 percent to approximately 7.03 million," Bajaj Finance said.

"The company has a granular and high-churn Retail/SME portfolio. Around 37 per cent of loans mature within a year. The business model relies significantly on the addition of new customers and good macros for cross-selling to existing customers. Lockdown poses a challenge not only in terms of growth but also asset quality. We expect the near-term focus to be on collections and managing liquidity and opex; growth is likely to be the least priority," analysts at Motilal Oswal Financial Services wrote in their result review note. The brokerage has 'neutral' rating on the stock at a target price of Rs 2,210.

Before the results, Morgan Stanley had already assumed that new customer growth may be negligible in FY21. With key business segments, such as wholesale consumer durable and automobile, not operating in April, and others, such as retail consumer durable and SMEs, yet to open up, the June quarter for the lender will be a washout. What’s worse, its impact may last for most of FY21.

“Given the environment and risk aversion, the focus will be on conserving capital. Growth isn’t our immediate priority,” Rajeev Jain, managing director, Bajaj Finance, said in a call with analysts.

"With about 30% of its customers in moratorium and likely increasing, management will have a tall task over the next few months. While growth and credit cost remain challenging to forecast, Bajaj is confident about stepping up its recovery teams. We remain assertive on Bajaj’s ability to spot new business opportunities, manage expenses and mobilize fee income to support its PPOP and outperform peers as and when the cycle picks up," wrote analysts at Kotak Securities in their result review note. They maintain 'buy' with a target price of Rs 2,600. 

The company's net interest income (NII), however, increased sharply by 38 per cent YoY to Rs 4,684 crore in the quarter. 

Gross non-performing assets (NPA) for the quarter remained flat at 1.61 percent on a sequential basis, while net NPA declined 5 bps to 0.65 percent compared to 0.70 percent in the previous quarter.

"Given capital and liquidity sufficiency acting as natural shock absorbers, FY22 is expected to earnings revival led return uptick (RoEs: 21%/RoAs:3.7%) and AUM traction (24% YoY growth). Reiterate BUY as stock stands in the value zone. Our price target stands at Rs 3,000 (earlier Rs 3582) as we assign book value multiple of 4.6x FY22E (earlier 5.1x)," said analysts at Prabhudas Lilladher.