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Bajaj Finserv and its 62 per cent subsidiary, Bajaj Finance, reported a good set of numbers for the quarter ended September 30. And, although growth rates have moderated, given the weak macro environment, the outlook for the two companies remains healthy.
All eight analysts polled by Bloomberg since September 1 have a ‘buy’ rating on Bajaj Finance, with an average target price of Rs 1,597, up 26 per cent from the current Rs 1,270. For Bajaj Finserv, five analysts are bullish on the stock, with an average target price of Rs 768, up 17 per cent from the current Rs 655.
Bajaj Finserv posted 27.5 per cent year-on-year growth in consolidated net profit to Rs 276 crore for the quarter, on a 30 per cent increase in total income from operations at Rs 1,309 crore. Strong growth in its lending (Bajaj Finance) and general insurance businesses fuelled the performance. The general insurance business reported growth of 45 per cent in profits to Rs 113 crore, led by strong traction in net premium (up 38 per cent) income. Its life insurance business, though, continued to be under pressure, with net profit falling 18.2 per cent to Rs 252 crore and a nine per cent decline in the assets under management to Rs 36,961 crore. Renewal premium fell by 17.6 per cent, pulling down the gross written premium.
“In view of the weak growth outlook for the life insurance sector, the top line and the margin are likely to contract (there). We, therefore, maintain our sum-of-the-parts (SOTP)-based price target of Rs 728 and a ‘hold’ rating on Bajaj Finserv. The company’s subsidiary, Bajaj Finance, has applied for a banking licence but we have not factored any upside from this angle,” said a Sharekhan analyst in a post-results note.
Bajaj Finance's net interest income grew 31.5 per cent to Rs 492 crore and net profit by 29.8 per cent to Rs 167 crore, compared to the year-ago period. Top line growth was driven by 29 per cent loan growth, while a robust 76 per cent growth in non-interest income (to Rs 87 crore) added to the company's bottom line growth.
For the quarter, disbursements grew 20 per cent year-on-year, led by the consumer and small and medium enterprises segments. The commercial segment (construction equipment, infrastructure) disbursements fell 23 per cent, due to the macro slowdown. Positively, the company managed to keep its asset quality stable, with gross and net non-performing asset ratios of 1.1 per cent and 0.26 per cent, respectively.
Going ahead, though, the growth rates might moderate.
The management admitted a slowdown in both discretionary and non-discretionary spending and indicated that early demand trends this festive season were below expectation. Hence, loan growth was likely to moderate to 20-25 per cent, compared to over 30 per cent in recent quarters. However, the company's focus on affluent customers is likely to help keep loan growth ahead of the sector. The Reserve Bank recently mandated banks to stop all zero per cent instalment-payment schemes, which could see customers moving to non-bank finance companies such as Bajaj Finance in this space.
“We expect Bajaj Finance to deliver continued market share gains in consumer electronics and scaling up of its LAP (loan against property) and SME products,” says Shyam Srinivasan, financials analyst at Goldman Sachs, who has a ‘Buy’ rating on the stock, with a target price of Rs 1,530.
Bajaj Finance has a strong presence in the consumer durables financing segment and competition here is moderate. This was reflected in its ability to raise interest rates by 25-30 basis points in select products (mainly floating rate ones). The company will continue to raise rates judiciously in select products, said the company’s chief executive in an analysts’ call. Broadly, analysts remain bullish on the prospects of the two companies.
“We remain positive on Bajaj Finance, given its strong earnings CAGR (compounded annual growth rate, of 22 per cent over FY13-15), reasonable valuations (1.6 times FY14 estimated book value), healthy asset quality and robust ROE (return on equity). A banking licence, if granted, would be a key catalyst,” says Ishank Kumar, financials analyst at Religare Capital Markets. The company has also expanded its operations in rural areas and this could drive medium-term growth, believe analysts.
