15 January 2014
3QFY14 Results Update | Sector:
Financials
Bajaj Finance
BSE SENSEX
21,289
Bloomberg
Equity Shares (m)
M.Cap. (INR b) / (USD b)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
S&P CNX
6,321
BAF IN
49.8
77.1/1.3
1,591/966
1/7/7
CMP: INR1,548
TP: INR1,704
Buy
Financials & Valuation (INR Billion)
Y/E MAR
NII
PPP
PAT
EPS (INR)
EPS Gr. (%)
BV/Sh.
(INR)
RoA (%)
RoE (%)
P/E (x)
P/BV (x)
2014E 2015E 2016E
22.9
14.1
7.5
151
27
801
3.6
20.4
10.3
1.9
28.2
17.3
8.8
177
18
947
3.2
20.3
8.7
1.6
34.8
21.4
10.5
212
19
1,121
3.2
20.5
7.3
1.4
Bajaj Finance (BAF) 3QFY14 PAT stood at INR1.94b, up 21% YoY and 16% QoQ (in
line with our est. of INR1.93b). Strong AUM growth (+33% YoY and 13% QoQ),
stable asset quality QoQ (GNPA/NNPA 1.15/0.23%), margins expansion of 60bp
QoQ and 200bp improvement in PCR were the key highlights of the quarter.
AUM growth remained strong (up 33% YoY and 13% QoQ) at INR224.6b, driven by
a robust +29% YoY in consumer segment and +50% growth in SME business.
Commercial segment (CE and short term infrastructure loans) de-grew +30% YoY.
Estimated margins stood at 12.5% and were flat YoY and improved 60bp
sequentially. The sequential improvement in margins is a seasonal phenomenon
due to strong earnings from consumer electronic financing, though marginally it
was also led by 50bp sequential decline in cost of funds (est).
Other highlights:
1) as BAF continues to invest in systems and processes, opex
(10% above est.) grew 37% YoY and 7% QoQ, 2) asset quality was stable, with
GNPA/NNPA at 1.15%/0.23%; and 4) BAF has 95% of the loan book at 90dpd (only
CE and Infrastructure on 180dpd).
Valuation and view:
BAF continues to reap the benefits of healthy consumer
demand and is among the few companies doing well in this space. Despite the
fragile macro environment BAF continues to have one of the best asset quality
among the peer group. Superior margins, focused fee income strategy and control
over cost ratio will keep core operating profitability strong. We expect RoA/RoE to
remain strong at over 3.4%/21% during FY14-16. We maintain
Buy
rating with a
target price of INR1,704 (1.8x FY15E BV of INR950).
Sunesh Khanna
(Sunesh.Khanna@MotilalOswal.com) + 91 22 3982 5521
Alpesh Mehta
(Alpesh.Mehta@MotilalOswal.com); +91 22 3982 5415
Investors are advised to refer through disclosures made at the end of the Research Report.

Bajaj Finance
Quarterly Performance v/s Estimates and reasons for deviations (INR m)
Y/E March
Income from operations
Other Operating Income
Operating Income
YoY Growth (%)
Interest expenses
Net Income
YoY Growth (%)
Other income
Total Income
Operating Expenses
Operating Profit
YoY Growth (%)
Provisions and Cont.
Profit before Tax
Tax Provisions
Net Profit
YoY Growth (%)
Loan Growth (%)
Cost to Income Ratio (%)
Tax Rate (%)
3QFY14E
9,887
400
10,287
24.7
3,821
6,466
28.3
24
6,490
2,718
3,772
30.9
950
2,822
892
1,930
20.1
30.6
42.0
31.6
3QFY14A
10,274
429
10,703
29.7
4,097
6,607
31.1
116
6,722
2,979
3,743
29.9
795
2,948
1,007
1,941
20.8
32.2
45.1
34.2
Var (%)
4
7
4
7
2
Comments
Operating income marginally above est.
Net income Inline
10
-1
-16
4
13
0.6
Continued investment led to higher opex
Operating performance Inline
Stable asset quality
PAT In line with estimate
Source: Company, MOSL
Consumer & SME continues to drive loan growth momentum
AUM growth remained strong (up 33% YoY and 13% QoQ) at INR 224.6b; driven
by a robust +29% YoY in consumer segment (Consumer electronics, 2 Wheelers
& personal loans) and +50% growth in SME business (Mortgage, LAP & BL) while
commercial segment which consists on construction equipment and short term
infrastructure loans de-grew +30% YoY.
Disbursements grew by 45% YoY to INR75.3b (highest ever quarterly
disbursements) led by +30% YoY growth in consumer segment (of which CD
disbursements grew 65% YoY) and +67% growth in SME segment while the
disbursements in the commercial continues to remain sluggish de-grew 6% YoY.
Asset quality remains healthy; PCR improves200bp QoQ to 80%
Asset quality was stable with GNPA/NNPA stood at 1.15%/0.23% remained flat
both sequentially and on YoY basis; Barring CE & 2 Wheeler credit quality
remained healthy across the product segments.
Provisioning expenses for the quarter stood at INR795m v/s INR513m in
3QFY13, however in during the BAF made an accelerated provisioning of
INR210m for bring 2Wheeler portfolio to 90dpd; adjusting for same provisions
grew by 14% YoY. BAF now has 95% of loan book at 90dpd (Only CE &
Infrastructure on 180dpd).
Despite accelerated provision; PCR continued to remain healthy and improved
200bp QoQ to 80%.
15 January 2014
2

Bajaj Finance
Conference call highlights
Consumer & SME business continues to do well: Consumer business grew 29%
YoY (healthy growth considering slowing consumer demand); the growth can be
attributed to increasing financing penetration as well as increase in average
ticket size. SME business (Mortgage, business loan & LAP) continues to grow
+50%; BAF is now among top 3 new loan originators in LAP.
2 Wheeler business de-grew 15% in Q3 due to slowdown in 2 Wheeler industry,
the 3 wheeler industry continues to grow at healthy pace. BAFs market share in
Bajaj Auto’s domestic sales continues to remain at 30% and 22% in 3 wheeler
sales. In order to keep the asset quality stable BAF has trimmed exposure in
certain markets which were not performing well.
Plan to ramp up home loan business; current market share stands at 3%; BAF
plans to increase the market share to 8-10% in next 2-3 years. The target market
will be to generate PSL home loans below 2.5m.
BAFs market share stands at 14% in consumer electronic financing, 20% in 2
Wheeler financing, 7% in small business loans and 11% in LAP. BAFs LCD industry
market share at 20% & LED industry market share at 30% of units sold in India.
Rural finance: Launched the second phase of rural lending business and have
increased the presence to 67 towns in rural Maharashtra. BAF has plans to cover
rural Gujarat in FY15. Rural product offering includes Gold loans, consumer
electronic loans and loan against free assets (like CV, Tractors etc.) and among
fee based products it is offering life and general insurance products. Initial
response in rural areas is encouraging; the rural foray will help BAF incase it
obtains banking license; current PSL stands at ~16% of loan book.
In view of unanticipated tight liquidity conditions (like RBIs measure in July) BAF
has decided to shore up the liquidity levels and going forward will maintain 60
days of liquidity; although this will have a negative carry but the impact will be
negligible.
Post the rate hike of 25-50bps on floating products BAF has hiked any rates
during the quarter. BAF has applied for credit card license and is waiting for RBI
nod to start the business.
Of the quarterly disbursements of INR 75b ~36% were repeat customers;
company is focusing to do more business with its existing credit tested
customers as this saves operating cost and also ensures better asset quality.
Improvement in collections efficiencies is helping contain NPL; While BAF
reports NPLs on 180dpd; it has made provisioning for 95% of loan book on
90dpd (barring CE & Infrastructure portfolio). The remain 5% of the book will
also be made 90dpd in next 2 quarters.
Fee based business: BAF is now the 2nd largest bancassurance partner for Bajaj
Allianz and largest partner for health insurance.
Average Ticket Size: CD Ticket size INR28.5K (v/s INR27K in last quarter); LAP
INR21m; LAS INR 8m; Personal loan INR2m; Salaries PL INR0.5m
15 January 2014
3

Bajaj Finance
Valuation and view
BAF continues to reap the benefits of the consumer finance boom and is among
the few companies doing well in this space; it also continues to enjoy pricing
power amidst benign competition in consumer segment. Despite the fragile
macro environment BAF continues to have one of the best asset quality among
the peer group. Strong core operating performance and faster-than-expected
turnaround in operations demonstrate the management's superior execution
skills. Superior margins, focused fee income strategy and control over cost ratio
will keep core operating profitability strong.
Strong loan growth momentum coupled with stable asset quality and low credit
costs would drive BAF's earnings at 20% CAGR over FY14- 16. We expect
RoA/RoE to remain strong at over 3.4%/21% during FY14-16. We maintain Buy
rating and target price of INR1,704 (1.8x FY15E BV of INR950).
One year forward P/E
One year forward P/BV
15 January 2014
4

Bajaj Finance
Disbursement growth remains healthy at +45% YoY
AUM growth led by consumer & SME business
Disbursements grew by 45% YoY to INR75.3b led by +30% YoY
growth in consumer segment and +67% growth in SME segment
AUM growth remained strong (up 33% YoY and 13% QoQ) at INR
224.6b; driven by a robust +29% YoY in consumer segment and
+50% growth in SME business. Commercial segment de-grew +30%
YoY.
AUM Mix: SME segments drives growth
Cost income improves 330 QoQ – element seasonality (%)
SME segment now account for over 50% of AUM
While opex were above est. CI improved 330bp QoQ due to healthy
topline growth
Asset quality continues to remain healthy
Healthy return ratios
Barring CE & 2 Wheeler credit quality remained healthy across the
product segments
Return ratios continue to remain healthy led by continued buoyancy
in operating performance and healthy asset quality
15 January 2014
5

Bajaj Finance
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
FY14
FY15
150.8
177.2
Consensus
Forecast
146.6
177.4
Variation
(%)
2.8
-0.1
Stock performance (1-year)
Shareholding pattern (%)
Dec-13
Promoter
Domestic Inst
Foreign
Others
62.1
7.8
11.8
18.4
Sep-13
62.1
8.1
11.1
18.8
Dec-12
62.0
12.6
6.7
18.7
15 January 2014
6

Bajaj Finance
Financials and valuation
15 January 2014
7

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Bajaj Finance
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Bajaj Finance
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