 "Bajaj Finance: Rich valuations defy rising stress")
Demonetisation is not sparing even one of the fastest growing non-banking financial services (NBFC) companies in India - Bajaj Finance. The company, in an investor call on Monday, highlighted the key areas of impact on its portfolio post demonetisation. The stock, which had corrected nine per cent post demonetisation, extended this fall on Monday as well as Tuesday (it fell another 5.7 per cent). In fact, it has underperformed the S&P BSE Sensex, which has corrected 2.2 per cent since the high-value currencies were withdrawn. Most brokerages have adopted a more cautious tone on the company. Bajaj Finance management too believes it would take 4-5 months for things to get normal again.
"Due to the festival season falling around demonetisation announcement, we believe the impact of the slower loan disbursals and muted demand would affect entire FY2017 performance," say analysts at Sharekhan. While lower growth in loan disbursements could restrict the increase in company's top line, lower collections could have a bearing on its asset quality. About 8.6 per cent of the company's loan book (mostly rural) has been impacted by demonetisation with the rest being largely stable.
The majority of its segments namely two/three wheeler finance, consumer durables finance, lifestyle product finance, amongst others witnessed a slowdown in disbursements post demonetisation when compared to the September 2016 quarter (Q2). Two and three wheeler finance has been the most hit for the company (due to higher dependence on cash) and grew 13 per cent compared to 50 per cent growth in Q2, even as gold loans (a smaller book) have virtually stopped. For the consumer business (except two and three wheeler and rural lending) under electronic/PDC payment mode, as defined by the company, cash collections have fallen 43 per cent in November as compared to October. Though cheque collections have grown a whopping 1,171 per cent, it is on a very low base. Representation and online mode of collections have also increased to 30 per cent of total from 12 per cent in October.
The company had indicated earlier that it will slow down consumer durables lending due to rising asset quality pressures. Management articulated on Monday that it has cut this business by 18 per cent and the digital product finance business by 35 per cent this quarter. Segments such as loan against property (company not growing this book), rural lending and salaried personal loans have witnessed a slowdown in disbursements due to demonetisation.
Given the backdrop, some analysts have lowered their earnings estimate for the company. While they believe that Bajaj Finance is relatively better placed than other NBFCs due to its lower reliance on cash transactions, valuations are not cheap. Even after the recent fall, Bajaj Finance stock trades at about 4 times FY18 estimated book value. Given lower collections and company's transition to 90 days recognition of bad loans, asset quality too remains a key monitorable.
