Bajaj Finance Q4: Consumer business nets another stellar quarter
Bajaj Finance reported a 60% surge in its net profit for Q4 beating Street estimates by a mile and even bucking a seasonally expected slower final quarter
Consumer lender Bajaj Finance Ltd reported a 60% surge in its net profit for the fourth quarter (Q4), beating Street estimates by a mile and even bucking a seasonally expected slower final quarter. It disbursed loans at break-neck speed while retaining its gilt-edged asset quality metrics.
Investors richly rewarded the company by driving up its shares more than 7% as well as its parent Bajaj Finserv Ltd’s stock by nearly 5%. At this level, Bajaj Finance trades at an opulent multiple of over five times its estimated book value for fiscal year 2020 (FY20).
Its operating numbers for Q4 as well as FY18 would justify the rich multiple. The lender’s wholly-owned housing loan subsidiary began operations in February and has already built a mortgage portfolio of over Rs3,000 crore. Therefore, on a consolidated basis, assets under management grew by 40%, earning Bajaj Finance a net interest income of Rs2,365 crore. What should cheer investors is that the lender is adding new customers even as it leverages its existing base. Bajaj Finance added 1.41 million new borrowers, growing its franchise by 30%.
The non-banking financial company is confident its housing loan subsidiary would deliver high double-digit growth rates despite the intense competition in the market. Bajaj Finance will run down its own mortgage portfolio and all incremental mortgage lending would be through the subsidiary Bajaj Finance Housing Ltd, the management said in a post-results call with analysts.
Meanwhile, its main engine of consumer lending continues to drive its growth and consumer loans grew 63% followed by loans to commercial businesses that rose 57%. Bajaj Finance’s rural portfolio doubled largely because a year ago, the portfolio had slowed down in the aftermath of demonetisation.
The management indicated that given that consumer lending is its bedrock, an adverse development in the economy may not impact earnings in a big way.
Nevertheless, Bajaj Finance’s investors would need to watch for headwinds from rising borrowing costs. Public deposits form just 12% of the lender’s borrowings, while a lion’s share comes from the bond market. The pressure on borrowing costs is palpable given rising bond yields and the upward pressure on loan rates.
A majority of analysts have a buy call on the stock as it derives a premium from its superior asset book and growth potential. As credit card swipes and the sprint in unsecured loans of banks indicate the debt-led consumption of Indians, the outlook for Bajaj Finance is sanguine. The lender only has to ensure its borrowings costs do not escalate.
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