Bajaj Finance
BSE SENSEX
26,515
S&P CNX
8,171
12 December 2016
Update
| Sector:
Financials
CMP: INR845
TP: INR1,053(+25%)
Buy
Riding the wave of demonetization
2W business impacted; portfolio performance broadly in line
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
12M Avg Val (INR M)
Free float (%)
Strong granular growth in most segments
BAF IN
535.5
1180 / 535
0/12/47
468.0
7.0
996
42.7
Disbursement growth across segments was encouraging in November. Barring LAP,
self-employed home loans and RM loans, all other products grew by a strong 10%+
YoY. Management clarified that of the 30% decline in LAP portfolio AUM, 23-24%
can be attributed to company-specific outlook on LAP and only 6-7% to
demonetization. Management expects velocity to slow down in the luxury real
estate market, but is unsure of any price correction. Logins in CD portfolio were up
10% YoY, but this was due to intentional scaling back in this business, as discussed
earlier by management. Without the scale back, growth would have been 20-25%.
Financials Snapshot (INR b)
Y/E March
2017E 2018E 2019E
This performance has been especially strong in the wake of 20% decline in daily
NII
51.4
66.3 85.7
average enquiry volumes at TransUnion CIBIL for the industry.
PPP
33.3
PAT
17.0
EPS (INR)
31.8
EPS Gr. (%)
33.1
BV/Sh. (INR)
163.9
RoA on AUM (%) 3.3
RoE (%)
21.1
Payout (%)
14.0
Valuations
P/E (x)
26.6
P/BV (x)
5.2
Div. Yield (%)
0.3
44.1
22.1
41.3
30.1
199.2
3.3
22.8
14.0
20.4
4.2
0.4
58.8
30.4
56.7
37.2
247.6
3.4
25.4
14.0
14.9
3.4
0.5
Impressive collection efficiency
The biggest impact of demonetization has been on its 2W/3W business as BAF
mainly deals with middle- and lower-middle-class borrowers. Over the past three
decades of BAF’s presence in this business, collection efficiency has been close to
90%. However, with 30% of collections generally being in cash, collection efficiency
declined to 84% in November due to the lack of currency. Collection efficiency from
overdue customers (under electronic/PDC repayment mode) too declined
significantly to ~68% from ~90% in October. However, given that this book forms
only 8% of total AUM and is secured, we do not foresee major asset quality issues.
LAP book has performed well with collection efficiency of 99%+. Interestingly,
collection efficiency in CD business, wherein management had turned cautious
recently, improved from 96.8% in October to 98.1%. Even for overdue accounts,
collection efficiency has been rather stable at ~95%.
Shareholding pattern (%)
As On
Jun-16 Mar-16 Jun-15
Promoter
57.4
57.4
57.6
DII
5.1
5.5
6.3
FII
19.8
20.1
17.6
Others
17.8
17.1
18.5
FII Includes depository receipts
Stock Performance (1-year)
Bajaj Fin.
Sensex - Rebased
1,190
1,010
830
650
470
Guidance largely unchanged; we cut FY17E/18E EPS by 3%/2%
While management refrained from providing any specific guidance, it maintained
the outlook of 25% balance sheet growth and 20% PAT growth in the short,
medium and long term, driven by continuous market share gains. Strong growth
(10% YoY) in CD portfolio is particularly impressive given the subdued environment.
While we are impressed by the company’s strong performance in November, we
cut our EPS for FY17E/18E by 3%/2% to factor in lower-than-expected AUM
growth. While we had predicted bottoming out of LAP portfolio growth from
3QFY17, we now expect the run-down to continue for two more quarters. We,
however, view this as a prudent decision given the sharp spike in delinquencies
across the industry. We use RI model with Rf of 7.25%, CoE of 13.3% and terminal
growth rate of 4.5% to arrive at a TP of INR1,053 (4.8x Sep 2018E BVPS). Maintain
Buy.
Sunesh Khanna
(Sunesh.Khanna@MotilalOswal.com); +91 22 3982 5521
Alpesh Mehta
(Alpesh.Mehta@MotilalOswal.com)/Piran
Engineer
(Piran.Engineer@MotilalOswal.com); +91 22 6129 1539
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Bajaj Finance
Story in charts
Exhibit 1: Strong loan growth to continue post FY17
Loans (INR b)
80
69
39
Growth (%)
Exhibit 2: Trend in margins
12.2
11.7
10.8
10.4
10.6
10.2
10.2
9.9
36
73
123
167
37
36
312
26
546
34
731
32
965
230
433
Source: MOSL, Company
Source: MOSL, Company
Exhibit 3: Gradual reduction in C/I ratio
44.5
46.9
44.7
46.0
45.1
43.7
43.1
41.1
38.7
Exhibit 4: PAT growth will continue to remain robust
65
45
22
4
6
7
25
PAT (INR b)
PAT Growth(%)
42
33
30
37
9
13
17
22
30
Source: MOSL, Company
Source: MOSL, Company
Exhibit 5: Improving return ratios
RoE (%)
3.8
3.8
3.8
3.4
3.1
RoA (%)
3.2
3.3
3.3
3.4
Exhibit 6: P/B trend – significant correction in past month
8.0
6.0
4.0
2.0
1.8
P/B (x)
10 Yrs Avg(x)
4.5
19.7
24.0
21.9
19.5
20.4
21.1
21.1
22.8
25.4
0.0
Source: MOSL, Company
Source: MOSL, Company
7 October 2016
2

Bajaj Finance
Valuation matrix
Financials: Valuation metrics
Rating
66
ICICIBC*
HDFCB
AXSB
KMB*
YES
IIB
IDFC Bk
FB
DCBB
JKBK
SIB
Private Aggregate
SBIN (cons)*
PNB
BOI
BOB
CBK
UNBK
OBC
INBK
ANDB
Public Aggregate
Banks Aggregate
HDFC*
LICHF
IHFL
GRHF
REPCO
DEWH
Housing Finance
RECL
POWF
Infra Finance
SHTF
MMFS
BAF
MUTH
SKSM
Asset Finance
NBFC Aggregate
Financials
Buy
Buy
Neutral
Buy
Buy
Buy
Neutral
Buy
Neutral
Neutral
Buy
Buy
Buy
Neutral
Buy
Neutral
Buy
Neutral
Buy
Buy
CMP
(INR)
265
1,184
445
730
1,193
1,085
67
70
105
61
22
263
131
116
159
306
141
120
241
51
Mcap
EPS (INR)
P/E (x)
BV (INR)
P/BV (x)
RoA (%)
FY17
1.12
1.92
0.56
1.63
1.77
1.83
1.18
0.79
0.95
-0.10
0.59
0.44
0.38
-0.01
0.46
0.27
0.28
0.32
0.75
0.08
FY18
1.05
1.94
0.84
1.81
1.84
1.85
1.11
0.80
0.93
0.28
0.62
0.54
0.38
0.28
0.57
0.32
0.45
0.27
0.66
0.31
RoE (%)
FY17
11.2
18.9
6.0
14.2
21.6
15.5
7.8
9.4
11.0
-1.4
10.3
7.5
7.0
-0.3
9.4
5.8
5.6
5.6
11.2
1.4
FY18
9.7
19.6
9.9
15.4
23.3
17.0
9.3
10.6
11.9
4.2
11.7
9.5
6.8
7.5
11.7
7.3
9.3
4.9
10.0
5.8
Buy
Buy
Buy
Neutral
Buy
Buy
Neutral
Neutral
Buy
Buy
Buy
Buy
Buy
1,262
565
693
315
540
248
132
132
869
273
845
297
692
(USDb) FY17 FY18 FY17 FY18 FY17 FY18 FY17 FY18
23.3
18.3 17.7
11.4 10.4 146 159 1.33 1.16
45.3
58.5 70.3
20.2 16.8 332 386 3.56 3.07
16.1
13.4 23.7
33.1 18.7 230 250 1.93 1.78
20.3
26.7 33.1
27.4 22.1 208 239 3.52 3.05
7.6
77.4 100.0 15.4 11.9 389 469 3.07 2.54
9.8
48.4 60.9
22.4 17.8 333 385 3.26 2.82
3.4
3.2
4.1
20.6 16.2 43
46
1.56 1.45
1.8
4.6
5.6
15.3 12.6 51
55
1.39 1.28
0.5
7.2
8.7
14.6 12.0 69
77
1.52 1.35
0.4
-1.8
5.6
-34.0 10.9 130 136 0.46 0.45
0.4
3.0
3.6
7.3
5.9
30
33
0.72 0.66
129.0
21.5 17.4
2.54 2.27
31.0
9.9 24.0
26.6 11.0 230 249 1.20 1.10
4.2
12.3 13.2
10.6
9.9 187 198 0.70 0.66
1.8
-0.6 18.8 -184.6 6.2 243 257 0.48 0.45
5.6
14.2 19.2
11.2
8.3 157 172 1.01 0.92
2.5
28.3 37.5
10.8
8.2 500 528 0.61 0.58
1.5
16.9 30.1
8.4
4.7 309 335 0.46 0.42
0.6
22.3 20.6
5.4
5.8 414 430 0.29 0.28
1.8
32.9 31.8
7.3
7.6 306 330 0.79 0.73
1.6
1.5
6.4
33.6
8.0 109 114 0.47 0.45
50.6
15.4 10.5
0.79 0.75
179.6
19.3 14.7
1.57 1.45
30.2
34.5 37.8
24.5 19.0 194 217 3.70 2.99
4.3
39.4 48.1
14.4 11.7 213 251 2.66 2.25
4.4
69.5 87.7
10.0
7.9 281 317 2.47 2.19
1.7
8.0 10.1
39.4 31.2 28
35 11.17 9.07
0.5
25.7 37.7
21.0 14.3 175 209 3.08 2.59
1.1
31.4 38.8
7.9
6.4 202 231 1.23 1.07
42.3
20.0 16.8
4.02 3.55
4.0
29.4 33.4
4.5
4.0 168 194 0.79 0.68
5.3
24.0 25.5
5.5
5.2 149 167 0.89 0.79
9.2
5.0
4.6
0.84 0.74
3.0
66.9 90.2
13.0
9.6 502 573 1.73 1.51
2.3
14.3 17.4
19.1 15.7 118 131 2.31 2.09
1.4
34.9 44.9
24.2 18.8 167 205 5.07 4.12
1.8
27.5 32.0
10.8
9.3 158 179 1.88 1.66
1.4
42.7 38.5
16.2 18.0 198 237 3.49 2.92
9.9
11.2
9.1
1.79 1.59
61.5
12.7 10.9
2.28 2.01
241.1
17.0 13.5
1.70 1.56
1.84
1.50
3.69
2.25
1.85
1.27
2.63
2.37
2.30
1.97
3.51
3.59
6.35
1.82
1.54
3.76
2.26
2.19
1.31
2.54
2.12
2.65
2.10
3.43
3.45
3.78
19.4
20.0
26.0
31.3
15.7
17.0
18.8
16.8
14.1
12.6
23.0
18.4
28.6
19.0
20.7
29.3
32.1
19.6
17.9
18.5
16.2
16.7
14.0
24.2
19.0
17.7
7 October 2016
3

Bajaj Finance
Financials and valuations
Income Statement
Y/E MARCH
Interest Income
Interest Expended
Net Interest Income
Change (%)
Other Operating Income
Other Income
Net Income
Change (%)
Operating Expenses
Operating Income
Change (%)
Provisions and W/Offs
PBT
Tax
Tax Rate (%)
PAT
Change (%)
Proposed Dividend
Balance Sheet
Y/E MARCH
Capital
Reserves & Surplus
Net Worth
Borrowings
Change (%)
Other liabilities & provisions
Total Liabilities
Investments
Change (%)
Advances
Change (%)
Net Fixed Assets
Other assets
Total Assets
E: MOSL Estimates
2012
19,963
7,462
12,501
36.9
1,668
89
14,257
37.7
6,691
7,566
31.7
1,544
6,022
1,958
32.5
4,064
64.6
496
2013
29,248
12,057
17,191
37.5
1,689
177
19,057
33.7
8,523
10,534
39.2
1,818
8,716
2,803
32.2
5,913
45.5
747
2014
37,896
15,732
22,163
28.9
2,429
419
25,011
31.2
11,511
13,500
28.2
2,588
10,912
3,722
34.1
7,190
21.6
802
2015
51,200
22,483
28,717
29.6
2,618
364
31,699
26.7
14,284
17,415
29.0
3,846
13,569
4,591
33.8
8,979
24.9
903
2016
69,566
29,269
40,297
40.3
3,477
792
44,566
40.6
19,492
25,074
44.0
5,429
19,646
6,861
34.9
12,785
42.4
377
2017E
90,073
38,699
51,374
27.5
6,189
901
58,465
31.2
25,187
33,277
32.7
7,303
25,974
8,961
34.5
17,013
33.1
2,127
2018E
117,155
50,902
66,253
29.0
7,737
951
74,941
28.2
30,828
44,113
32.6
10,320
33,793
11,658
34.5
22,134
30.1
2,767
(INR Million)
2019E
153,611
67,951
85,660
29.3
9,284
951
95,895
28.0
37,080
58,815
33.3
12,462
46,353
15,992
34.5
30,362
37.2
3,795
(INR Million)
2019E
1,071
131,518
132,589
859,156
32.0
11,929
1,003,674
13,268
8.0
965,344
32.0
2,900
22,163
1,003,674
2012
826
19,509
20,336
102,264
52.4
6,667
129,267
55
-2.3
122,831
68.9
1,388
4,993
129,267
2013
991
32,677
33,668
133,490
30.5
11,051
178,209
53
-4.0
167,440
36.3
1,762
8,957
178,211
2014
995
38,914
39,909
197,496
47.9
8,776
246,180
282
436.3
229,710
37.2
2,199
13,990
246,180
2015
1,003
46,996
47,999
266,908
35.1
13,206
328,112
3,323
1,077.9
311,995
35.8
2,492
10,303
328,112
2016
1,071
72,175
73,246
370,247
38.7
6,903
450,397
10,341
211.2
433,144
38.8
2,870
18,210
464,565
2017E
1,071
86,700
87,771
480,271
29.7
8,284
576,326
11,375
10.0
545,762
26.0
2,880
16,309
576,326
2018E
1,071
105,597
106,668
650,876
35.5
9,941
767,485
12,285
8.0
731,321
34.0
2,890
20,989
767,485
7 October 2016
4

Bajaj Finance
Financials and valuations
Ratios
Y/E MARCH
Spreads Analysis (%)
Yield on Advances
Cost of borrowings
Interest Spread
Net Interest Margin
Profitability Ratios (%)
RoE
RoA
RoA on AUM
Int. Expended/Int.Earned
Secur. Inc./Net Income
Efficiency Ratios (%)
Op. Exps./Net Income
Empl. Cost/Op. Exps.
Valuation
Book Value (INR)
Price-BV (x)
Adjusted BV (INR)
Price-ABV (x)
EPS (INR)
EPS Growth (%)
Price-Earnings (x)
OPS (INR)
OPS Growth (%)
Price-OP (x)
Dividend per Share (INR)
Dividend Yield (%)
E: MOSL Estimates
2012
20.4
8.8
11.6
12.2
2013
20.2
10.2
9.9
11.7
2014
19.1
9.5
9.6
10.8
2015
18.9
9.7
9.2
10.4
2016
18.7
9.2
9.5
10.6
2017E
17.5
9.1
8.4
10.2
2018E
17.6
9.0
8.6
10.2
2019E
17.5
9.0
8.5
9.9
24.0
3.8
37.4
11.7
21.9
3.8
3.9
41.2
8.9
19.5
3.4
3.5
41.5
9.7
20.4
3.1
3.2
43.9
8.3
21.1
3.2
3.3
42.1
7.8
21.1
3.3
3.3
43.0
10.6
22.8
3.3
3.3
43.4
10.3
25.4
3.4
3.5
44.2
9.7
46.9
28.4
44.7
28.8
46.0
29.6
45.1
31.6
43.7
32.3
43.1
34.2
41.1
35.3
38.7
35.8
49
17.4
48.2
17.5
9.8
45.9
85.9
18.3
16.8
46.1
1.2
0.1
68
12.4
66.8
12.6
11.9
21.3
70.8
21.3
16.1
39.7
1.5
0.2
80
10.5
78
10.9
14.5
21.1
58.5
27.1
27.6
31.1
1.6
0.2
96
8.8
91
9.3
17.9
23.9
47.2
34.7
28.0
24.3
1.8
0.2
137
6.2
133
6.4
23.9
33.4
35.4
46.8
34.8
18.0
2.5
0.3
164
5.2
164
5.2
31.8
33.1
26.6
62.1
32.7
13.6
2.3
0.3
199
4.2
199
4.2
41.3
30.1
20.4
82.4
32.6
10.3
3.0
0.4
248
3.4
248
3.4
56.7
37.2
14.9
109.8
33.3
7.7
4.1
0.5
7 October 2016
5

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Bajaj Finance
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Served as an officer, director or employee -
Bajaj Finance
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No
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In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited:
Varun Kumar
Varun.kumar@motilaloswal.com
Contact : (+65) 68189232
Office Address:21 (Suite 31),16 Collyer Quay,Singapore 04931
Motilal Oswal Securities Ltd
7 October 2016
Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025
Phone: +91 22 3982 5500 E-mail: reports@motilaloswal.com
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