Neutral Bajaj Finance; target of Rs 3350: Motilal Oswal

Motilal Oswal 's research report on Bajaj Finance

Bajaj Finance (BAF)’s 2QFY21 PAT declined ~36% YoY to INR9.6b (2% miss). NII beat of 2%, coupled with opex beat of 3%, led to 4% PPoP beat. With INR17b credit costs, BAF continued to build on its provision buffer – its standard asset provisions of 3.7% are now among the highest in our NBFC coverage universe. For 1HFY21, PPoP grew 20% YoY; however, PBT declined 32% YoY due to COVID-related provisioning. GNPA declined ~37bp QoQ to 1.03%, aided by high write-offs of INR4.7b and net recoveries. Adjusted for the impact of the Supreme Court order, GNPA/NNPA would have been higher by 31bp/19bp. The company declared a Stage 2 loan ratio of 8% (effective stress pool, in our view). BAF reiterated loan loss provision guidance of INR60–63b for FY21 (MOFSLe of INR64b).

Outlook

We reduce our FY22 credit cost estimate to 2.2% (from 3.3%), resulting in an upgrade in FY21/FY22E EPS estimates by 6%/15%. Maintain Neutral, with target price of INR3,350 (4.2x Sep’ FY22 BV).

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