As Bajaj Finance mirrors the demand slowdown, lights to dim on valuations

The festive season is not all bright this time with muted consumption demand, and consumer lender Bajaj Finance Ltd’s performance didn’t impress investors. If the first quarter showed signs of a demand slowdown, troubles have piled in the second quarter for the non-banking financial company (NBFC).

Bajaj Finance reported 38% growth in its consolidated assets under management (AUM) for the September quarter, lower than 41% from the previous quarter. Exactly a year ago, when the credit crisis hit NBFCs, the lender’s AUM growth was at the same level. In short, business doesn’t seem to have improved.

Deceleration was witnessed across the board, but the segment most affected was that of its consumer business-to-business (B2B) vertical, which deals in discretionary spending. Consumer B2B grew by just 19%, far lower than the 24% a year ago. Simply put, Indians are not buying that latest gadget or appliance with the fervour seen earlier. This is worrisome, more so, as the ongoing festival season was supposed to inspire consumers to loosen their purse strings.

Rajeev Jain, managing director of Bajaj Finance, said the pickup in disbursements during the current festival season is not living up to previous years, but he was hopeful that the next one week will be different. “While I would not be able to hazard a guess on third quarter so soon, the next few weeks are critical,” Jain said over the phone.

Bajaj Finance has however seen the slowdown coming. Four months ago, Sanjiv Bajaj, vice chairman of the company, had warned of a dramatic slowdown.

Ironically, the warnings on slowdown and pressure on asset quality have been coming from Bajaj Finance. Last quarter, the company had said the slowdown was affecting the payment capacity of borrowers. The percentage of 30-day overdue loans had risen for most products on a sequential basis. This has continued even in the September quarter.

In fact, excluding home loans, all other loan categories showed a rise in delinquencies from a year earlier. Some categories, such as loan against property and auto loans, showed comparatively sharper deterioration.

It is clear that the average Indian is finding it harder to pay EMIs (equated monthly instalments), but the levels are not alarming. Even so, the rise in delinquencies only adds to the narrative of the ongoing slowdown.

Investors worried over the slowdown impact drove the Bajaj Finance stock down by 2.5% on Tuesday. But the stock still trades at a steep multiple of seven times its estimated book value for FY21. Part of this premium is simply because most other NBFCs are either battling a rise in delinquencies or a liquidity crunch. For Bajaj Finance, its asset-liability profile is superior to most peers. But perhaps, in light of the slowdown, its valuations may prompt a relook.