Tuesday, February 7, 2012


Bajaj Finance’s net profit grew 57% yoy, driven by strong AUM growth, up 74% yoy, expansion in NIM (on AUM) in 3QFY12 over the last quarter and lower loan-loss provisioning. We expect loan growth to slow down due to the high base, and margins to decline from FY13 due to the altered loan mix. On the lower profitability expected in FY13/14, we maintain a Sell.

 Robust loan growth; unlikely to sustain. AUM grew 74% yoy (18% qoq) to `11.9bn, driven by strong growth in loans against property and infrastructure loans. We expect loan growth to moderate in FY13/14 due to the high base and slower economic growth.

 NIM declined ~370 bps yoy. NIM fell ~370 bps yoy on the change in composition of loans in favour of secured assets (which constituted 51% of AUM in 3QFY12 vs. 39% in 3QFY11) and the increase in borrowing costs. With the rising proportion of infrastructure loans and loans against property, we expect NIM to be flat in FY13/14.

 Asset quality robust; we expect credit cost to increase. In 3QFY12, asset quality was robust, with gross and net NPAs declining respectively 8% and 20% sequentially. Loan-loss provisions (0.3% of AUM) in the quarter were the lowest since FY09. We expect the NPA provisions to rise given the slower economy and high proportion of unsecured assets.

■ Valuation. Slower loan growth, flat margins and high credit costs are likely to lead to lower profitability in FY13/14 than in FY12. We estimate a 250bps slip in RoE over FY12-14. At a price target of `712, the stock would trade at FY12e and FY13e PBV of 1.5x and 1.2x, respectively. We maintain a Sell. Risks: higher-than-expected loan growth, margin improvement and stable asset quality.