Let us have a look at the results for Bajaj Finance for Q4 FY19. But before going through the results I will recommend you to look at the following links

The analysis has been captured visually in the below video.

Financial Analysis

Bajaj Finance Q4 FY19 (Crores) Q4 FY18 (Crores) Growth (%)
Revenue 5307.66 3487.70 52.18%
Expenses 3496.84 2347.42 48.96%
PBT 1811.63 1144.17 58.33%
PAT 1176.06 747.55 57.32%
  • Revenue, Expenses, PAT: The numbers for revenue, expense and PAT are amazing! Bajaj finance continues to positively surprise the shareholders

Let us try to dissect the expense numbers for the company.

Expense Item Q4 FY19 (Crores) Q4 FY18 (Crores) Growth (%)
Finance Cost 1913.21 1227.28 55.89%
Employee Cost 531.80 390.30 36.25%
Other Expense 414.21 322.92 28.27%
Loan losses and Provisioning 409.26 227.22 80.11%
  • Finance Cost: Finance cost grew in-line with the revenue growth.
  • Employee Cost: Employee cost grew at a lower rate. As a percentage of revenue it is close to 10 percent. That is a sizeable amount. This shows that the company has to shell out more money to hire specialized staff.
  • Other Expense: Growth in other expenses was moderate.
  • Loan loss and provisioning: There was a noticeable rise in the loan losses and provisioning numbers for the company.

Other than the higher provisioning rest of the expenses seem to be contained.

EPS:

EPS growth (both non-annualized and for the entire FY19) are shown below. EPS growth followed the PAT growth.

EPS Q4 FY19 (Rs.) Q4 FY18 (Rs.) Growth (%)
EPS (non-annualized) 20.29 13 56%
EPS (FY19) 69.33 44.38 56%

Footprint

The company performs its lending operations in two modes. One is via its branch network and the other is through the 3rd party retail stores (like Croma etc). The table below shows the growth in branches (both rural and urban) and its presence in 3rd party stores.

  Q4 FY19 Q3 FY19 FY18 FY17 FY16 FY15
Branches (Urban Locations) 927 867 730 318 193 161
3rd Party Retail Stores (Urban Locations) 77,200 71,600 57,000 29,000 17,500 14,500
Branches (Rural Locations) 903 869 602 538 397 232
3rd Party Retail Stores (Rural Locations) 14,500 13,100 8,200 5,500 3,500 1,500

Note: Additionally the company has presence on e-commerce websites as well.

Assets under Management (AUM)

The company has grown its asset under management at a very healthy rate. The table below captures the AUM and its growth.

  Q4 FY19 FY18 FY17 FY16 FY15 FY14
AUM (Crores) 1,15,888 84,033 60,196 44,229 32,410 24,061
AUM Growth (%) 37.9% 39.6% 36.1% 36.5% 34.7%

The housing finance arm has been growing at a very fast pace. Below is the AUM breakup for the housing finance arm. The total AUM for the housing finance arm, as of Q4 FY19, is rupees 17,562 crores. All the segments of housing finance arm are growing at a breathtaking pace! However, I would be weary of extrapolating the growth rates as the numbers are coming with a very low base of FY18. On the other hand the quarter-on-quarter growth itself was impressive. The dedicated home loan team is going a decent job.

BHFL AUM breakup Q4 FY19 (Crores) Q4 FY18 (Crores) Growth (%) Q3 FY19 (Crores)
Housing Loans 11,909 2,906 309.8% 9,723
Loan Against Property 2,719 452 501.5% 2,115
Lease Rental Discounting 1,705 1,211
Developer Financing 705 69 921.7% 573
Others 532 418

Cost of Funds

In Q4 FY19 the cost of funds was about 8.3% for the company. Over the years the company has managed to reduce its cost of funds despite a frenzied AUM growth and the credit crunch in NBFC sector. A credible feat.

Q4 FY19 (%) Q3 FY19 (%) FY18 (%) FY17 (%) FY16 (%) FY15 (%) FY14 (%) FY13 (%) FY12 (%)
Cost of Funds 8.3% 8.2% 8.2% 9.0% 9.5% 9.9% 9.9% 9.7% 9.1%

Borrowing Profile

The borrowing profile for the company, for the past seven years, is as below. There has been no major change between Q3 and Q4 of FY19 (except for the marginal increase in bank borrowings and NCDs). On a longer term basis, the company has moved away from high cost bank loans to relatively lower cost NCD and Deposits. Bajaj finance is now eligible to do an External Commercial Borrowings (ECB). The company plans to raise the entire $750 million worth of ECB that it is eligible for. This should help reduce the borrowing cost for the company.

Borrowing Source Q4 FY19 (%) Q3 FY19 (%) FY18 (%) FY17 (%) FY16 (%) FY15 (%) FY14 (%) FY13 (%) FY12 (%)
Banks 34% 32% ~31% ~35% ~48% 54% 58% 53% 58%
NCD 38% 36% 43% 40% 38% 33% 25% 35% 31%
Subordinated debt (Unsecured high interest loan) 5% 5% 6% 7% 3% 4% 3% 4% 3%
Short Term Borrowing 8% 12% 8% 10% 5% 5% 13% 8% 9%
Deposits (Retail) 15% 14% ~12% ~8% ~6% 4% 1% 0% 0%

Deposits:

Deposits are an excellent source of low cost funds and the company has managed to increase the deposit amount in absolute terms as well as a percentage of borrowing basket.

  Q4 FY19 Q3 FY19 FY18 FY17 FY16 FY15
Deposits (Crores) 13,193 11,489 7,793 4,128 2,243 983

Non-Performing Assets

The table below captures the Net Non-Performing Assets (NNPA) for Bajaj Finance for Q4 FY19 as well as for the past seven years. In Q4 of FY19, the GNPA was 1.54% and NNPA at 0.63%. Compared to Q3, the numbers are consistent.

Non-Performing Assets Q4 FY19 Q3 FY19 FY18 FY17 FY16 FY15 FY14 FY13 FY12
NNPA 0.63% 0.62% 0.38% 0.44% 0.28% 0.45 0.28% 0.19% 0.12%

With respect to NPAs the table below shows the amount that rolls forward to NPA as well as the amount written of (in absolute terms) for Q4 FY19.

Q4 FY19 (Crores) Q3 FY19 (Crores) Q2 FY19 (Crores)
Roll forwards into NPA 593 702 480
Write-offs 270 285 150

Return on Equity

The company strives to achieve a return on equity of 18-21%. The table below shows the ROE for FY19. A thumb rule is that the return on equity should be higher than the cost of capital. In India the cost of capital is roughly about 15%.

FY19 FY18
Return on Equity 22.5% 20.1%

Return on Assets

The ROA (annualized) for FY19 was 4.2% .The company has managed to generate a higher return on assets for quite some time now.

FY19 FY18
 Return on Assets (Annualized) 4.2% 3.7%

Capital Adequacy Ratio (CAR)

Capital adequacy ratio for the company stands at 20.7% which has dropped from 24.71% as seen in FY18. Considering the fact that the Tier-I capital is at around 16% and the leverage ratio is around 6.3, I am guessing they may come to raise capital from the stock market sometime towards the end of calendar year 2020 or the beginning of 2021.

CAR Q4 FY19 Q3 FY19 FY18 FY17 FY16 FY15 FY14 FY13 FY12
Tier 1 Capital (Regulatory Norm 10%) 16.3% 16.80% 19.86% 14.56% 16.06% 14.15%% 16.2% 18.7% 15%
Tier II Capital 4.4% 4.58% 5.0% 5.7% 3.4% 3.8% 3.0% 3.3% 2.5%
CAR Combined (Regulatory Norm 15%) 20.7% 21.38% 24.71% 20.30% 19.5% 17.95%

Partnerships

The company has partnership with RBL bank (for Credit Cards) and Mobikwik (for Wallets) businesses. I believe the company earns a fee income by selling these products. The table below captures the growth in user base that uses these products. The company leverages the Mobikwik wallet platform by linking the EMI card with the mobikwik account. So wallets help the company grow their EMI card base as well. Moreover one need not carry the physical card. Instead one can use the mobikwik wallet to pay.

Q4 FY19 Q3 FY19 Q2 FY19 Q1 FY19 Q4 FY18 Q3 FY18 Q2 FY18
RBL (Credit Cards)  (Million Users) 1.053 0.845 0.663 0.508 0.382 0.255 0.135
Mobikwik (Million Users) 8.3 6.5 3.3 2.2 1.3 0.47 0

Customer Growth as well as Cross sell opportunities

Quantum of Loan accounts grow under two circumstances:

  • Addition of new customers
  • Cross selling of loan products to existing customers.

The table below captures the first aspect i.e. customer growth over the past few quarters.

Customer Count Q4 FY19 Q3 FY19 Q2 FY19
Total Customer availing loans (Million) 34.48 32.57 30.05
New Customers added (Million) 1.91 2.52 1.77

The table below captures the second aspect i.e. the number of customers to whom the company was able to cross sell loans (i.e. existing customers who availed other loan products from Bajaj Finance) over the past few quarters

Cross selling customers Q4 FY19 Q3 FY19 Q2 FY19
Total Customers availing cross sell products (million) 20.67 19.69 17.82
New customers availing cross sell products (million) 0.98 1.87

Bajaj Housing Finance

Bajaj housing finance has grown its AUM to about 17,562 crores and it has generated a profit of about 110 crores. The GNPA and NNPA for this subsidiary are 0.05% and 0.04%. The table below captures some of the salient points about the four major business segments of Bajaj Housing finance subsidiary.

Business Segment Average Ticket Size Geographical Spread Loan to Value (LTV)
Home Loan

·        Salaried – 85%

·        Self-Employed – 15%

37 Lakhs 44 Locations 69%
Loan Against Property (LAP) 27 Lakhs 30 Locations 49%
Lease Rental Discounting (LRD) 20 Crores 8 Locations
Developer Finance 15 – 35 Crores 8 Locations

On the ALM side, up to 1 year, all the buckets are adequately covered. However beyond a year, there are some gaps with more assets compared to the liabilities. The quantum of gap is less though. Hopefully the company should be able to cover this with time.

By the way Rajeev made a very interesting remark that Mortgages (including Housing Finance) is an ALM game rather than an asset based game. Which, I believe, means that the asset growth will be limited by the ALM. If the company manages to raise long term liabilities it can push the asset side growth.

ALM GAP Up to 1 Yr 1 to 3 Yr 3 to 5 Yr 5 to 7 Yr 7 to 10 Yr >10 Yr
Cumulative Inflows 6251 10186 12889 14888 17157 21377
Cumulative Outflows 4972 12628 17115 17650 17650 21377
GAP 1279 (2442) (4227) (2762) (493) 0

Rajeev provided some interesting numbers about mortgage business as a whole:

  • The entire mortgage market is worth 21 lakh crore. The companys manages 34,000 crores. Hence Bajaj finance services 1.5% of the total mortgage market.
  • The company wishes to service 8% to 10% of the mortgage market which means that the company expects the subsidiary to grow at least by six times from where it is right now.

Leverage Risk Assessment

I saw a very interesting metric disclosed by the company in Q4 FY19 called leverage risk assessment. This is what I think is the meaning of this section:

  • The company wanted to find out the leverage its customers have for unsecured loans. The customers who took loan from Bajaj Finance are free to take loans from other banks and financial institutions. Now, in case of unsecured loans, the customer could stretch himself and land both himself and Bajaj Finance into trouble by defaulting on the loans.
  • So Bajaj Finance went to CIBIL and got the total outstanding loan for all of its customers across all the lenders.
  • For the purpose of computation, the company assumes that the nominal GDP shall grow at say, 12 percent per annum (so the customers income\revenue is also assumed to grow at this rate). If the leverage of the customer grows at less than 12 percent then the customer or the segment is not at risk. However if the leverage grows beyond this rate then the chances are that the customer has stretched himself\herself and he may default.
  • So the company evaluated the leverage risk for all of its loans from Q4 FY17 and computed the leverage. It found that, in case of four out five segments (i.e. personal loan, salaried personal loan, business loan and rural loans) the leverage grew at less than 12 percent for its customers. Only in case of professional loans it sees that, for 24 months vintage loans, the leverage has grown by 30 percent (instead of the safe limit of 24 percent).

Hence, overall, its customers seem to be within their stretchable limits as far as unsecured loans are concerned and hence, hopefully, they MAY not default.

These numbers have guided the company to appropriately lower the lending amount to its customers. In segments and cities where it sees the customers have stretched, it has reduced the loan amount limits. I am impressed with the proactive approach that the company takes to mitigate risk.

Summary

  • The company continues to perform exceedingly well. The revenue and PAT growth is worth emulating.
  • The company continues to grow its footprint across the country with more branches and touchpoints.
  • The liability profile is very healthy and the company has managed to maintain its borrowing rates.
  • The NPA are a tad higher but they are contained. The ROE and ROA continue to be very healthy.
  • The capital adequacy ratio is manageable and it gives legroom to the company to grow its asset base. With sufficient reserve cash the company can tide over sudden credit crunch spikes.
  • The housing finance arm is growing at a breathtaking speed. The subsidiary is on its way to become one of the top five housing finance companies in India.

Overall an excellent quarter for the company!

Disclaimer

I am not a SEBI registered research analyst. The information provided above is my subjective view based on what I have read on different websites, annual reports, and quarterly reports of various companies which I assume to be accurate. The above information should not be treated as an offer/advise to purchase a specific stock/investment instrument. Since these are my subjective opinions, I could be wrong in my understanding or presentation of information. I do not claim that the above information is complete or can be relied upon as such. I cannot be held responsible for any loss or damage caused due to any inadvertent error in the above information. I will not be liable for investment decisions made by readers of this article based on the above information. I am not an investment advisor. I may or may not have position in the above company. Please consult your investment advisor for all your investment needs.