Bajaj Fin: Growth may moderate

But still remains healthy at 20-25%

Bajaj Finance's results for the quarter ended December 31, 2013, were largely in line with Street expectations. Strong loan growth (up 44.85 per cent), stable asset quality and margins were the highlights of its performance. The net profit was Rs 194 crore (up 21 per cent year-on-year) and was curtailed by higher provisioning, up 55 per cent year-on-year (and 52 per cent sequentially). The company increased provisioning to comply with 90 days’ weak loans recognition. Adjusting for this, the net profit would have grown 30 per cent to Rs 208 crore. Total income (interest income plus fee income) stood at Rs 1,082 crore, up 30.7 per cent, and was a function of strong growth (32.5 per cent) in net interest income, or NII, to Rs 672 crore. This performance, though, was boosted by the festive season and it could moderate.

  "We believe the strong performance in the first nine months of this fiscal (FY14) should come off in Q4 (fourth quarter) of FY14. Q4 onwards, growth will be very tough and loan growth could come down from 30 per cent plus level to 20-25 per cent in Q4. While FY15 should witness moderation in growth, loan growth and net profit growth will still be decent at 20-25 per cent and 18-20 per cent, respectively," says Rajeev Jain, chief executive of Bajaj Finance. The company has posted a 25 per cent growth in net profit to Rs 537 crore on a 34 per cent growth in NII (Rs 1,855 crore) in the nine months ending December 2013. The management admitted demand trends remained weak.

Most analysts, though, remain positive on the company given its strong positioning in the consumer durables financing business and growth potential. Of the nine analysts polled by Bloomberg since November, six have a 'buy', with the rest having a 'hold' rating on the stock. However, their average target price stands at Rs 1,557, very close to its current market price of Rs 1,548. Current valuations of 1.6 times FY15 estimated book value also seem to be fair given its moderating growth outlook. Analysts, thus, believe investors can consider the stock on dips.

"Bajaj Finance's growth momentum continued through the festive season while asset quality performance held up well. The stock trades at 1.4 times FY16 estimated book value and remains attractive," says Digant Haria, non-banking financial company analyst at Antique Stock Broking.

In the December quarter, consumer finance (51 per cent of the loan book, up 30 per cent) and small and medium enterprise (SME - 41 per cent of loan book, up 102 per cent) contributed to most of the loan growth. Commercial lending declined 12 per cent as the firm consciously stayed away from this segment because of the unfavourable macro scenario. While its consumer durables (LED/LCD TVs, etc) and mortgages businesses grew well, two-wheelers witnessed a 15 per cent drop given lower volume growth of Bajaj Auto, a group firm.

The company's asset quality continued to be strong with stable gross and net non-performing assets at 1.15 per cent and 0.23 per cent, respectively. While the management does not give margin figures, it believes the higher competition in retail lending could disrupt pricing in the market. The management has adopted a wait-and watch-mode on its margins.