Bajaj Finance shares tank 6%; brokerages cut estimates keep mixed views

Shares of Bajaj Finance tanked about 6 percent to hit their fresh 52-week low of Rs 2,083 on BSE on April 7 even as a day ago the company said despite a 10 days loss, the company continued to grow its assets, new loans, new customer acquisition and franchise in a steady manner during Q4.

In a BSE filing on April 6, the company said its customer franchise as of March 31, 2020, stood at 4.26 crore as compared to 3.45 crore as of March 31, 2019. During the March quarter of FY20, the company had acquired 19 lakh new customers.

New loans booked during Q4FY20 were 60 lakh as compared to 58 lakh in Q4FY19 and assets under management (AUM) stood at Rs 1,47,600 crore as of March 31, 2020, as compared to Rs 1,15,888 crore as of March 31, 2019, the company claimed.

"The company continues to remain well capitalised with the capital adequacy ratio (CRAR) of approximately 25 percent as of March 31, 2020. Consolidated liquidity surplus stood at Rs 15,800 crore as of March 31, 2020. The company’s liquidity position remains very strong," Bajaj Finance said.

Deposit book stood at Rs 21,400 crore as of March 31, 2020, compared to Rs 13,193 crore as of March 31, 2019. The mix of the retail and corporate book stood at 72:28, Bajaj Finance said.

Moreover, the company said it is assessing the adequacy of provisioning for identified large accounts and will consider enhancing provisions for these accounts. It is also considering one-time accelerated provisioning for COVID-19 to further strengthen its provisioning standards.

Brokerages trim estimates, keep mixed views

Brokerage firm Emkay Global Financial Services, in a report on April 6, said it had downgraded the company to 'hold' from 'buy', revising the target price to Rs Rs 2,331 from Rs 3,570 earlier.

"We downgrade Bajaj Finance to 'hold' from 'buy' and revised the target price to Rs 2,331 from Rs 3,570, corresponding to nearly 3.2 times P/B FY22E, considering elevated uncertainties around growth and asset quality. With management’s rising focus on recoveries and managing asset quality, growth will take a back seat at least for a few quarters," Emkay Global said.

Emkay is of the view that as the whole world is facing a recession due to the COVID-19 outbreak, India would not be an exception.

"With nearly 63 percent of lending to retail customers, nearly 91 percent business in urban and semi-urban areas and nearly 39 percent portfolio under the consumer durable segment, Bajaj Finance is the most vulnerable to the current scenario of lockdowns," Emkay said.

Also, with an average asset maturity of 24 months, the decline in disbursements would have a faster impact on growth resulting in speedy AUM rundown, Emkay added.

Brokerage firm Motilal Oswal Financial Services has a 'neutral' view on the stock with a target price of Rs 2,625.

Motilal has cut its earnings estimate by 42 percent and 25 percent for FY21 and FY22E, respectively, to factor in the lower AUM growth and a sharp rise in credit cost, whose impact was partially negated by the opex cut.

Motilal expects AUM growth to slow down from 27 percent in FY20 to 8 percent in FY21, but revert to 20 percent in FY22.

"While we believe stock price correction (55 percent from peak) and current valuations (2.9 times FY22E BV) largely factor in the moderate economic growth and the resultant impact on earnings, near-term volatility may remain high as earnings have significant linkages to the prevailing COVID-19 situation," Motilal Oswal said.

Motilal Oswal believes that segments like two-wheeler financing, SME and loan against property will witness asset quality stress in FY21E. The brokerage estimates credit costs to jump from 2.5 percent in FY20 to 4 percent in FY21 and then moderate to 3.1 percent by FY22E.

On the other hand, Kotak Institutional Equities has upgraded Bajaj Finance to a 'buy' from a 'sell' with a target price of Rs 2,700 from Rs 3,850 earlier.

"We believe that increased risk to Bajaj Finance’s consumer and SME book from the current lockdown and on the back of an economic slowdown is priced in, post the recent sharp stock correction," said Kotak in a report on April 7.

"We significantly increase our credit cost estimates for FY2021E, slowdown our medium-term growth forecasts in the backdrop of increasing uncertainty and raise our cost of equity assumptions to reflect increased business risks in the current environment," it said.

Kotak said Bajaj Finance has built a solid data-driven lending engine that has helped it to read early warning indicators, toggle across segments and channels.

Kota believes that Bajaj will sail through these challenging times even as it may have to face rough weather in the near-term.

"The stock is down from its rich multiples, that assumed uninterrupted high-growth, to reflect current challenges. We believe that this is a good opportunity for long-term investors, many of whom, have believed in the story but were not comfortable to enter at higher levels, an approach similar to ours," Kotak said.

Kotak has reduced its estimates by 16-39 percent for FY2021-22E reflecting lower growth and higher credit costs; PBT before provisions stands reduced by 12-14 percent.

After the reduction, Kotak expects Bajaj to resume 19-20 percent RoE by FY2022E. The RoE decline in FY2021E (14 percent) will be sensitive to write-offs in the lending book, Kotak said.