Q4 results: Bajaj Finance profit suggests no dearth of growth, stock gains

With strong AUM increase, the company posted one of its highest quarterly profit growth; expansion in rural lending to aid future earnings

At a time when the overall earnings environment is subdued, Bajaj Finance, the country’s leading consumer financier, posted a increase of 60.6 per cent in net profit for the January-March period (Q4), the highest growth in 26 quarters. 

The performance saw Bajaj Finance’s share price climb to an all-time high before closing 7.8 per cent higher at Rs 2,067.25. 

The profit growth also comes on a high base (the year-ago quarter saw a 43 per cent rise in profits), and was led by an over 40 per cent year-on-year rise in net interest income (NII), the difference between interest earned and expensed. Analysts were estimating profit to grow by 40-45 per cent during the quarter.

Topline was driven by a 34 per cent rise in assets under management (AUM, indicating the size of the loan book), which was helped by expansion of its distribution and lending network resulting in a 51 per cent rise in the number of loans underwritten. The AUM growth figure would stand increased to 40 per cent if the mortgage book, now in a 100 per cent subsidiary (Bajaj Housing Finance), is included. Growth came from across segments, with the consumer loan book (over 45 per cent of AUM) up 35 per cent year-on-year in Q4. 

Going ahead, the management expects AUM to grow by 27 per cent in FY19, leading to 20-22 per cent rise in NII. The rural segment, which posted a 96 per cent rise in AUM in Q4, will improve further. 

“We have been investing in rural lending for the past five years and now we believe we have reasonable control over the rural lending model. If we can continue to manage risk well from rural lending, we should probably see another 100 per cent growth (in rural AUM) in FY19,” says Rajeev Jain, MD of Bajaj Finance.

Analysts, too, are optimistic. “With consumer durables, the vehicle industry and the rural economy doing well and the management targeting an increase in geographical presence, the company will witness strong growth in its loan book. This will improve the overall performance of Bajaj Finance,” says Deepak Kumar, analyst at Narnolia Securities. 

Notably, the company’s asset quality improved in Q4, despite transition to a shorter 90-day bad-loan recognition method from 120 days earlier. Gross non-performing assets (NPAs or bad loans) stood at 1.5 per cent as of March 2018 as against 1.7 per cent as of December 2017.

Though the company’s fundamental potential looks strong, it needs to be seen if the stock can deliver attractive returns as it is currently trading at a high valuation of five times its FY20 book value. “High valuation may restrict growth rate in the stock. However, if the stock corrects, it would be a good buying opportunity,” Kumar adds.

Bajaj Finserv Q4 net profit up 36%

Bajaj Finserv Ltd posted a 36 per cent rise in consolidated net profit to Rs 11.14 billion for the March quarter (Q4). It had a net profit of Rs 8.19 billion in Q4 of FY17. Total revenues of the company grew by 25.4 per cent to Rs 88.3 billion in Q4 of FY18, against Rs 70.40 billion in the year-ago period, Bajaj Finserv said in a regulatory filing. For the entire 2017-18, the company's net profit increased by 25.8 per cent to Rs 43.4 billion, from Rs 34.5 billion. Income in FY18 stood at Rs 306 billion, up from Rs 245.1 billion earned in 2016-17. The directors recommend a dividend of Rs 1.75 per share (35 per cent) subject to approval of shareholders, it said in a regulatory filing. The stock of Bajaj Finserv closed 4.67 per cent up at Rs 5,566.40 on the BSE. PTI