JM Financial’s research report on Bajaj Finance
Bajaj Finance (BAF) reported 2QFY18 net profit of INR 5.57bn, up 37% YoY and in line with our estimates. Disbursement growth was healthy at 34% YoY while AUM growth remained robust at 38%, driven by consumer, rural and commercial segments. Customer acquisition remained strong, with BAF acquiring 1.32 million customers (60% YoY) in 2QFY18. NII/AUM increased 15bps YoY to 11.2% due to a 60bps YoY decline in funding costs. Its cost-asset ratio increased 46bps YoY to 4.92% due to investment in BFL 2.0 technology, geographical expansion and investment in new product lines. Asset quality trends remained stable, with the gross NPL ratio stable at 1.7% in 2QFY18, on 90DPD YoY, while coverage stood at 70.5% (vs. 73% in 2QFY17). Credit costs remained stable at 136bps YoY and included accelerated provisions of INR 0.3bn in LAP due to GST-related concerns. Management highlighted that moderation in LAP growth took place on account of a higher-ticket LAP book that was sourced pre-2015 through DSAs. With the company revamping its LAP model by going direct and making it granular, it expects its LAP book to slightly slow down for the next 3-4 quarters. Yet, BAF remains well-positioned to deliver sustainable profitable growth going forward.
We maintain a BUY rating with a Target Price of INR 2,050.
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