Emkay Global Financial's report on Bajaj Finance
After reporting a healthy performance in Q4FY21, management of Bajaj Finance (BAF) in a mid-quarter update indicated some adverse impact of Covid-19-related fresh lockdowns on business during Q1FY22. The company expects a milder impact on its financials. BAF remained open for business across all categories during Q1FY22; however, B2B and Auto Finance businesses were most affected due to strict lockdowns in majority of states. These businesses delivered 70% of their planned volumes in Apr'21 and their volumes dropped to 40% in May'21. Other lines of business were less impacted in Apr'21 and delivered 85% of planned disbursements. BAF leveraged its digital capabilities to remain largely functional in May'21 and delivered 60% of planned disbursements. With expected reopening, Jun'21 should be much better. The company estimates an impact of Rs40-50bn to its AUM for FY22 on account of the disruption caused by the second wave. BAF has taken several actions to reduce its expenses and cost of funds to partially mitigate the financial impact.
Outlook
We maintain our estimates intact for now and continue with our cautious stance on the company, considering persistency of lockdowns in few large states as well as likely fear of a third wave in coming months. We also expect a surge in the restructured portfolio post fresh guidelines from the RBI last month. We have a Hold rating (EW in EAP) on the stock with a TP of Rs5,400 (~6.5x FY23E ABV).
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