 "Bajaj Finance ups the ante every quarter")
On a dull day of trade, Bajaj Finance's stock zoomed nearly 10 per cent to close at Rs 9,853.40 a share on the BSE on Tuesday. The combination of strong results and announcements such as a stock-split (five shares of Rs 2 each for every share of Rs 10 held) and bonus share issue (1:1 ratio) after the stock-split helped the Bajaj Finance stock outperform in trade.
Its assets under management (AUM) grew 40 per cent in the June quarter to Rs 49,608 crore, and drove top-line growth. Here, the consumer finance loans made the difference, as it grew 47 per cent year-on-year. This is commendable given the weak sentiments prevailing across many segments of the economy. The rural portfolio, though small, also aided top-line.
According to Shweta Daptardar of KRC Research, growth in the rural finance portfolio played an important part in driving performance in the quarter. AUM of rural loans, which accounts for 3.4 per cent of Bajaj Finance's total AUMs (Rs 1,688 crore), posted a two-fold growth year-on-year (y-o-y).
While the June quarter tends to be seasonally good thanks to the pent-up demand effect, analysts expect the strong show to continue, led by strong demand from salaried and self-employed segments. Also, the cost-to-income ratio in the quarter declined 500 basis points y-o-y to 41 per cent. Lower costs and high loan growth indicate that the efforts taken to transition from a distribution-based model to direct-to-customers model are helping. "We want to reduce the cost-to-income to 38-40 per cent in the next 15 months," says Rajeev Jain, managing director of Bajaj Finance.
What's also comforting is that the gross non-performing assets (NPA) ratio based on 150 days recognition moderated to 1.25 per cent in the June 2016 quarter from 1.69 per cent in the year-ago period, while net NPA ratio fell to 0.30 per cent versus 0.48 per cent.
As the company adopts tighter provisioning norms, Jain expects gross NPA ratio to be between 1.6 per cent and 1.8 per cent. But, analysts say this is yet not alarming as strong AUM growth could offset any pressure on this count.
The recent spike in Bajaj Finance's stock price (up 62 per cent year-to-date) and given analysts' price target of Rs 7,642 indicate limited upside.
Its assets under management (AUM) grew 40 per cent in the June quarter to Rs 49,608 crore, and drove top-line growth. Here, the consumer finance loans made the difference, as it grew 47 per cent year-on-year. This is commendable given the weak sentiments prevailing across many segments of the economy. The rural portfolio, though small, also aided top-line.
According to Shweta Daptardar of KRC Research, growth in the rural finance portfolio played an important part in driving performance in the quarter. AUM of rural loans, which accounts for 3.4 per cent of Bajaj Finance's total AUMs (Rs 1,688 crore), posted a two-fold growth year-on-year (y-o-y).
While the June quarter tends to be seasonally good thanks to the pent-up demand effect, analysts expect the strong show to continue, led by strong demand from salaried and self-employed segments. Also, the cost-to-income ratio in the quarter declined 500 basis points y-o-y to 41 per cent. Lower costs and high loan growth indicate that the efforts taken to transition from a distribution-based model to direct-to-customers model are helping. "We want to reduce the cost-to-income to 38-40 per cent in the next 15 months," says Rajeev Jain, managing director of Bajaj Finance.
What's also comforting is that the gross non-performing assets (NPA) ratio based on 150 days recognition moderated to 1.25 per cent in the June 2016 quarter from 1.69 per cent in the year-ago period, while net NPA ratio fell to 0.30 per cent versus 0.48 per cent.
As the company adopts tighter provisioning norms, Jain expects gross NPA ratio to be between 1.6 per cent and 1.8 per cent. But, analysts say this is yet not alarming as strong AUM growth could offset any pressure on this count.
The recent spike in Bajaj Finance's stock price (up 62 per cent year-to-date) and given analysts' price target of Rs 7,642 indicate limited upside.