Strong growth in disbursements and other income enabled Bajaj Finance to deliver higher-than-expected results for the December quarter. The non-banking finance company registered a 58 per cent annual growth in net profit to Rs 120 crore, way above Bloomberg estimates of Rs 97 crore, partly aided by the smaller base.
Even as the December quarter is traditionally strong due to festive demand, consumer sentiment was low due to slow economic growth. Bajaj Finance beat industry growth, with a 68 per cent jump in disbursements to Rs 4,649 crore.
The company appears to have preferred growth to margins. A subdued environment ,where demand was slowing and interest rates rising also restricted Bajaj from passing on cost increases. This is reflected in surgeing interest costs, which doubled to Rs 207 crore in the quarter, and restricted the rise in net interest income at 39 per cent (Rs 396 crore). Interest costs would have risen faster, but for the longer maturity borrowings, the company has taken in the last two years (when rates were lower).
Even as it grew fast, the company was cautious in segments like loans against securities, construction equipment and infrastructure financing. A judicious risk management strategy helped maintain asset quality. Its net non-performing assets stood at 0.25 per cent — the lowest in five years, against 1.1 per cent in the year-ago period. Thus, loan losses and provisioning fell 20 per cent and helped net profits grow faster.
Going ahead, the challenge will be to sustain asset quality. Analysts believe NPAs have bottomed out and could rise as the company scales up in newer verticals to sustain growth. The management, too, expects NPAs to hover around 0.60 to one per cent going forward, which for now looks manageable.
Higher penetration in existing markets led the growth in consumer finance business. The management remains confident of growing this segment 20-25 per cent in FY13. The strong traction in rural areas continues, which, besides focus on new product launches, should act as catalyst for growth. These should help scale up overall assets under management to Rs 13,000 crore in FY12 and Rs 16,000 crore in FY13, from Rs 11,919 crore at the end of December 2011.
Nilanjan Karfa, analyst at Brics Securities who has an ‘add’ rating on the stock, says: “We expect the commercial lending, construction equipment and infrastructure loans to grow in FY13. Disbursals will be a function of secured asset and consumption-driven growth. But, if the economy continues to slow, Bajaj Finance will see some impact.” The other risk emanates from its fund-raising plans through the equity route, which may act as an overhang in the near-term.