Q2 would also be crucial in terms of delinquencies, as some analysts are still sceptical of the overall balance sheet stress. Photo: Wikimedia Commons
The top line of Bajaj Finance
in the June 2020 quarter (Q1) was better than Street estimates, but the lender lagged on the profit front because of Covid-19-led increase in credit cost.
The consumer finance major reported a 12.4 per cent year-on-year (YoY) increase in consolidated net interest income to Rs 4,152 crore, beating consensus estimate of Rs 3,638 crore. But, a threefold rise in bad loan provisioning saw profit before tax fall 29.3 per cent YoY to Rs 1,310 crore, 35 per cent lower than the expectation of Rs 2,019 crore.
The company made additional provisioning of Rs 1,450 crore in Q1, taking the contingent credit loss provision due to Covid to Rs 2,350 crore or 10.8 per cent of the moratorium book. Total provisions, along with that for Covid, rose to Rs 2,973 crore at the end of June (13.7 per cent of moratorium book) as against Rs 1,870 crore at the end of April.
Its moratorium book came down to Rs 21,705 crore — 15.7 per cent of the assets under management
(AUM) at the end of Q1 — from Rs 38,599 crore (27.1 per cent of AUM) at the end of April because of improved collections. The improvement in moratorium was across segments.
Higher provisioning and moderate growth of 7 per cent YoY in AUM were in line with the company's priority to mitigate balance-sheet risk, including efficient liability management.
Shweta Daptardar, analyst at Prabhudas Lilladher, says: “Bajaj Finance’s Q1 provides comfort on the collection front and provision for moratorium book. Though there will be some delinquencies due to Covid-19 in FY21, the impact shall be limited.”
A major chunk (around 70 per cent) of consumer B2C and mortgages, which together account for over 50 per cent of AUM, saw no bounce history in recent times. “This is very positive,” opines Daptardar, who also foresees a 15-16 per cent upside in the stock.
After the resumption of activities in May, the bounce rate and collection efficiency of all 1.7 million newly disbursed loans are in line or marginally better than pre-Covid-19 loans and, if this trend continues, the company expects to focus on growth in the second half of FY21. Thus, how the collection trend pans out in Q2 will be crucial.
Q2 will also be crucial in terms of delinquencies. Deepak Kumar, analyst at Narnolia Financial Advisors, says, “There is no clarity on the overdue status of the moratorium book.” Therefore, Q2 results will give some idea whether the current Covid-19 provisioning is sufficient, he adds.
The three-month moratorium period for the March dues ended in June and slippages, if any, would be reflected in September.
Currently, 85 per cent of the lender’s business is functional. It estimates AUM growth of 10-12 per cent in FY21, assuming no further lockdown. According to its estimates, more than 75 cities in which it operates will show return to pre-Covid volumes by October, a further 40-75 cities by November, another 10-40 cities by January 2021 and the top 10 cities by March next year.
It has also increased FY21 credit cost expectations from April due to extended disruptions, and reversed interest income of Rs 220 crore related to moratorium account. Analysts consider this as a prudent step.
In the first quarter, gross NPAs fell by 210 basis points sequentially to 1.4 per cent because of an 86 per cent fall in slippages.
The lender said it has acquired 0.53 million new customers in Q1, taking its total consumer base to 42.95 million, up 16 per cent YoY. Its capital adequacy ratio at the end of Q1FY21 stood at 26.4 per cent, with tier 1 capital at 22 per cent.
On the whole, how Q2 pans out would be crucial for the stock, which shed 4.3 per cent after results on Tuesday. Part of the fall, however, can be attributed to profit-booking as the stock had risen 45 per cent from its lows in March.