Bajaj Finance Ltd Performance Review based on Q3 2018-19 Result
Bajaj Finance Limited, a subsidiary of Bajaj Finserv, is an Indian Non-Banking Financial Company. The company deals in Consumer Finance, SME and Commercial Lending, and Wealth Management.
Attractive stocks have exceptional fundamentals. In the case of Bajaj Finance Limited, there has a great track record of performance as well as an excellent growth outlook going forward.
Source : http://www.moneycontrol.com
Let’s look at the some major key aspects:
Q3 FY 2018-19 Update :
- Assets Under Management (AUM) :
AUM here means the total loan amount given out by the company
|In Rs. Crore||1,09,000||78,000||41%|
The asset base of the company has grown by 41%. Such a huge jump in the AUM numbers for a company like Bajaj Finance is no easy task. This is a very positive sign of and for the company.
Bajaj Finance has quite an interesting business model. You must have noticed the 0% EMI scheme of Bajaj Finance. The question that people have here is that how does the company earn income. So, they are working on commission basis. The company, of which the product you buy under that scheme, pays Bajaj Finance a commission on that sales. We get the 0% EMI benefit and the company earns close to 10%.
Bajaj Finance has acquired a considerable market share and has deep penetration. Now, many companies are trying to enter in this market, but Bajaj Finance has taken the early-mover advantage. Only in such schemes (like 0% EMI or Bajaj Finance EMI Card) Bajaj Finance has almost 67 lakh customers.
|In Rs. Crore||4,995||3,374||48%|
The growth here is also very healthy.
2.Interest Expense :
The company has to pay interest on the loans and borrowings they have taken. This payment of interest is termed as Interest Expense.
|Interest Expense||Q3FY18-19||Q3FY17-18||YoY Growth|
|In Rs. Crore||1,786||1,179||51%|
The difference between Total Interest & Fee Income and the Interest Expense is very huge, almost more than Rs. 3,000 crores. So, the interesting fact to be noted here is that the fee income earned by the company might be very huge.
The Bajaj Finance EMI Card product of the company seems to be appreciated by everyone. Now the company has also newly entered in to the Housing Finance Market but as they don’t have much penetration they don’t have any long-term loans.
3. Asset-Liability Management :
Asset-Liability management means the duration for which the loans have been given and the duration for which the borrowings have been taken should be in accordance. There shouldn’t be any mismatch in these amounts. According to the Indian and International standards, there should be a gap of 15%. In a broad sense this mean that, if the company has borrowed for a period of 1 year then the company should not give out loans with duration more than 13-14 months.
The Asset-Liability management of Bajaj Finance is very good. Bajaj Finance trades at -50% levels. That is if the company has borrowed money for 1 year then they are giving out loans only for 6 months. Even with this the company has such good business margins. That is why companies like Bajaj finance don’t feel any pressures of loan maturities, money being asked back in the market.
This is the exact problem with DHFL. They have borrowed money for short-term and given out long term loans, and because of this mismatch the maturities on their borrowings are due, the company has no money to pay which has led to a liquidity crunch in the company.
Bajaj Finance may not face such liquidity crunch as the asset-liability management of the company is tremendously good. So, the gap of Rs. 3,000 crores in income and expense is because of this reason.
4. Net Interest Income :
Majorly the amount left after deducting the (interest) expenses from total (interest) income.
|Net Interest Income||Q3FY18-19||Q3FY17-18||YoY Growth|
|In Rs. Crore||3,206||2,195||46%|
Bajaj Finance numbers are growing by more than 40% in every parameter.
5. NPA Provisions :
|NPA Provisions||Q3FY18-19||Q3FY17-18||YoY Growth|
|In Rs. Crore||454||278||63%|
These numbers have increased compared to last year. This can be little alarming. But when you look at the overall numbers then these provisions don’t seem to be that big.
The Gross NPA of Bajaj Finance is 1.55% and its Net NPA is 0.62%. The numbers are not that big but if there will be similar increase every time then that can be a little alarming.
6. Profit Before Tax (PBT) :
|In Rs. Crore||1,636||1,064||54%|
7. Profit After Tax (PAT) :
|In Rs. Crore||1,636||1,064||54%|
The Net Profit of the company has increased by 54% YoY. This is also a very positive sign.
Exceptional growth potential with solid track record
Investors in search of impressive top-line expansion should look no further than Bajaj Finance, with its expected revenue growth to more than double in the upcoming year. Its most recent figures are exceeding its annual average over the past five years. Not only did Bajaj Finance outperformed its past performance, but its growth also exceeded the Consumer Finance industry expansion, which generated a 16.05% earnings growth. This is what investors like to see!
Why does the Bajaj Finance Ltd Valuation look attractive?
|Market Cap||1,50,480 crores|
|Net Profit||1,060 crores|
The Net profit of the company is growing by almost 40% YoY and by 10% QoQ. (Net Profit of Q2FY18-19 = 923 crores)
The Net profit of the company probable will not grow more than this. The company have a Trailing Twelve Month (TTM) of Rs. 4,240 crores (1,060 × 4) even if the same levels are maintained.
The December ending was not very good for the NBFCs. But if even in such bad situation Bajaj Finance gives 40-50% profit/sales growth, then it is a very positive sign.
Now, the growth can be looked at from various parameters such as net profit, operating profit, revenues, etc. And from every parameter the company is growing by minimum 42%.
So, if the P/E ratio is 42 and the growth is also 42%, the PEG ratio of 1 (42 ÷ 42) looks very positive.
That is why the stock of Bajaj Finance Ltd has such premium valuations.
- The PAT increased by 54% when AUM increased by 41% and the provisions increased by 63%. This means the operational efficiency of the company is very good.
- Bajaj Finance is doing quite well in their overall business operations.
- Bajaj Finance has also started focusing on their Housing Finance business.
- Bajaj Finance is also planning to enter into the broking and Demat business.
- Compared to the market Asset-Liability Management of Bajaj Finance Limited is notable.
- With the current valuations and if the same PE of 42.67 is considered then the stock can give an upside of 15-20%.
- Also, the growth of the company is well managed. It’s not like they have taken extra-ordinary risks to experience such growths.
- An investor should definitely keep the stock of Bajaj Finance Limited in their radar.
- Financial Numbers – Bajaj Finance Limited
- Q3FY18-19 = Quarter of Oct-Dec of 2018
- Q2FY18-19 = Quarter of Jul-Sept of 2018
- Q3FY17-18 = Quarter of Oct-Dec of 2017
- The numbers that are used are approximate and have been rounded for presentation purposes.
- We are not in any way saying that this is a bad company, or the stock of this company is bad.
- We are also not suggesting anyone to immediately go and buy this stock or invest in the stock markets.