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FILE PHOTO: A cashier displays the new 2000 Indian rupee banknotes inside a bank in Jammu, November 15, 2016. REUTERS/Mukesh Gupta/File photo (REUTERS)
FILE PHOTO: A cashier displays the new 2000 Indian rupee banknotes inside a bank in Jammu, November 15, 2016. REUTERS/Mukesh Gupta/File photo (REUTERS)

Bajaj Finance Q2 earnings show EMI charm on consumption still pale

It will be long before Indians resume borrowing-led consumption. Unsure of jobs or wages in the future, people are unlikely to go big on EMI-based purchases. Lenders are hoping the festival season inspires some buying

The covid-19 pandemic is said to have altered consumer behaviour drastically. For a consumer lender such as Bajaj Finance Ltd, the implications of this are already visible.

In a performance update on the exchanges, the non-banking financial company said that it added 3.6 million new loans during the September quarter. That is not even half of what it did in the year-ago period. Bajaj Finance’s assets under management growth was a measly 1.3% year-on-year. What this shows is that Indians are unwilling to resume borrowing for discretionary consumption. As such, discretionary consumption such as travel and leisure are extremely curtailed even today. The lender’s business is to encourage it by giving Indians the option to pay easy equated monthly instalments (EMI). But with the outlook on employment dim, Indians are not likely to take on future payouts for today’s consumption. They don’t want to buy today and pay tomorrow.

Frail recovery
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Frail recovery

To be sure, Bajaj Finance’s metrics are a big improvement from the June quarter. As the adjoining chart shows, new customer accretion has shown a marked improvement from the April-June quarter. Recall that the quarter was largely under complete lockdown with little to no economic activity.

With the government now allowing large parts of economic activity to resume, consumption has improved.

But it is still a long way for Indians to resume EMI-led purchases. Lenders, including Bajaj Finance, are hoping the festival season will inspire some buying. However, it is unclear how much of a lift in AUM growth would this bring. Motilal Oswal Financial Services Ltd analysts cut their estimate for AUM growth in FY21. “The sharp decline in disbursement volumes has come as a bit of a disappointment (in the context of healthy trends witnessed by peers such as HDFC).." a note from the brokerage firm said. “…Hence, we now cut our FY21 AUM growth estimate to 6% from 12% earlier," the note added.

What’s more is that its shares have grossly underperformed a bunch of companies that thrive on discretionary consumption. The S&P BSE consumer discretionary index is down just 1% since January, against Bajaj Finance’s 18% drop. This suggests that even though consumption demand may be improving, Indians at best may be dipping into their savings to spend rather than take on fresh debt.

Bajaj Finance faces additional trouble from increased competition. HDFC Bank has been pushing retail loans aggressively. Part of Bajaj Finance’s business deceleration can be attributed to market share loss, too. Besides, investors must also wait and see how much of its book Bajaj Finance ends up restructuring, given that moratorium has ended.

The company stock has indeed lost its premium valuation with growth prospects dwindling. For now, its recovery seems to be long-drawn.

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