Rivals catching up faster with Bajaj Finance

In an unusual reaction to its quarterly results, the stock of Bajaj Finance dipped by 3.4 per cent to close at Rs 1,888.85 apiece on Monday, despite the financials being in line with the Street’s expectations. While a part of the fall could be attributed to the sharp rally of 133 per cent in calendar year (CY) 2017 alone, a finer reading of its September quarter (Q2) performance shows the competition is, perhaps, catching up faster than expected with Bajaj Finance’s consumer durables business. Though the assets under management (AUM) for its core consumer-lending business grew by 42 per cent year-on-year (y-o-y) to Rs 33,815 crore in Q2, disbursal of its vehicle financing and consumer durables financing segments were wobbly, prompting investors to ask if Bajaj Finance should up its ante in these segments. 

As a rub-off of Bajaj Auto’s unstable domestic sales volumes in recent times, vehicle loan disbursals (two-wheelers and three-wheelers) dipped for the first time in many quarters by four per cent y-o-y to Rs 1,121 crore in Q2. Bajaj Finance, a captive financier for Bajaj Auto vehicles, accounts for 25 per cent of Bajaj Auto’s domestic two-wheeler and 26 per cent of three-wheeler sales. 

However, the niggling point in Q2 is the 10 per cent y-o-y disbursement growth posted by its consumer durables lending arm. Being the most prominent segment, accounting for 23 per cent of the consumer finance business’ AUM, its growth in Q2 is the slowest in the past six quarters. While the consumer durables segment has seen a neat increase in AUMs — from Rs 6,519 crore a year ago to Rs 8,000 crore in Q2 — Rajeev Jain, managing director, Bajaj Finance, said changing consumers’ buying habits is a big factor in this space. “A shift in buying habits in favour of online store and the growing trend of high-value, lower volumes nature of the business are the key reasons for slower disbursals in the area,” he said. “Equally important is the lack of new launches in the durables space.”

The other noticeable blip is the peaking of operating expenses to net interest income (NII) ratio at 44.6 per cent from 42.9 per cent a year ago. After maintaining this ratio at 41-43 per cent lately, the spike in Q2 may be impacted by efforts taken to enhance new business strategies, dealer expansion, and advertisement campaigns. As these are ongoing exercises, the number could remain at 43–44 per cent for some quarters. Other parameters such as 41 per cent y-o-y NII growth (Rs 1,958 crore), 37 per cent net profit growth to Rs 557 crore and 38 per cent AUM growth (Rs 72,139 crore) are also noteworthy. Gross non-performing assets ratio, which is contained at 1.68 per cent, in Q2 is also good. 

Going ahead, whether the December quarter, driven by the festive season, will help normalise the consumer durables segment’s disbursals is a key monitorable, critical to defend its stock valuation of 6.5x of FY18 estimated price-to-book.

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