Bajaj Finance Q2 preview: Profit may see double-digit decline, AUMs likely to be flat

NBFC major Bajaj Finance is expected to report 20-30 percent year-on-year decline in profit for the quarter-ended September 2020 due to higher credit cost and elevated provisions. Numbers will be released on October 21.

Net interest income (NII) growth is expected to be in single digit YoY with lower growth in assets under management (AUM).

"NII Growth is expected to be at 4 percent YoY in Q2FY21 on the account of lower AUM growth due to focus more being on collections rather than growth. AUM growth is expected to be at 4 percent YoY (2 percent QoQ). Profit growth is likely to be at -33 percent YoY due to high credit cost expected in Q2FY21," Narnolia Financial Services said.

Credit cost will continue to remain elevated (up 250 bps YoY to 4.3 percent) on account of write-offs in consumer finance book, in line with management's guidance, Kotak Institutional Equities feels.

According to the brokerage, moderate AUM growth is expected to be an interplay of (1) strong revival in disbursements after August 15, (2) rundown of short-tenure consumer loans and (3) interest accruals on loans under moratorium, but decline in cost of funds will boost NIM by 40 bps YoY to 9.9 percent.

As of July 20, 2020, the company had consolidated liquidity buffer of Rs 20,590 crore and SLR investments of Rs 2,550 crore. This represents 19.2 percent of its total borrowing.

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"Given the environment, the company will continue to run high liquidity buffer, despite an impact on cost of funds in the short term," Narnolia said.

Pre-provision operating profit growth is likely to be in the range of 10-20 percent with improving cost-to-income ratio YoY.

"The company is well focused on OPEX control with no incremental hiring till September 2020, frizzing advertisement and other discretionary expenses and no branch expansion till September 2020. So cost-to-income ratio is likely to improve going ahead 27 percent in Q2FY21," said Narnolia which sees pre-provision operating profit growing 15 percent YoY.