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Bajaj Finance beats street, good show likely to go on

The management expects a downward trajectory of interest rates to support the margins.

, ET Bureau|
Updated: Jul 20, 2017, 09.08 AM IST
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Bajaj Finserv – the holding company of Bajaj Finance – reported 22 per cent increase in its June quarter profit compared to last year.
Bajaj Finserv – the holding company of Bajaj Finance – reported 22 per cent increase in its June quarter profit compared to last year.
ET Intelligence Group: Shares of Bajaj Finance touched a new life-time high Wednesday after it reported stronger-than-expected earnings for the quarter ended June.

The momentum is set to continue, with the non-banking financial company showing a robust performance on some of the key parameters. For the quarter, the loan book (asset under management) grew by 35 per cent y-o-y to Rs 66,862 crore after adjusting for Rs 2,021 crore of IPO financing.

While the y-o-y AUM growth in some of the key high IRR (internal rate of return) yielding consumer business segments like consumer durables, 2 & 3-wheeler finance and digital products has slowed over the last two quarters, segments such as personal loans cross-selling, salaried personal loans, and loans against securities have gathered pace.

In an analyst call, the management said that the high yields generated on consumer businesses are not likely to change over the next few years due to the higher base of some of the segments. Around 1 per cent to 2 per cent volume growth in the consumer durable segment is attributed to demand pick-up ahead of GST implementation. To be sure, valuations are rich. The stock trades at 7 times its expected FY18 book value, and at such a level of valuation, the stock might face resistance moving north.

The net interest income (NII) for the quarter reported a strong 49 per cent growth compared to the same period last year. While the net interest margin (NIM) number was not available, around 90 basis points of drop in the cost of funds is believed to have supported the margin.

The management expects a downward trajectory of interest rates to support the margins.

While the demonetisation was expected to result in loan loss provisions of Rs 100 crore to Rs 120 crore, in the last two quarters, the company has already provided for Rs 69 crore of impact and sees the rest of the provisioning to get done in the next two quarters. Despite a 59 per cent jump in provisions during the June quarter (to Rs 286 crore) that also included onetime provisions for sell down of the infrastructure finance book, the profit after tax reported a strong 42 per cent growth during the quarter.

Despite having moved to a 90-day pass recognition cycle for bad assets, Bajaj Finance reported a healthy gross non-performing asset ratio of 1.7 per cent in the June quarter, which is acknowledged as an indication of strong underlying credit quality.

Bajaj Finserv – the holding company of Bajaj Finance – reported 22 per cent increase in its June quarter profit compared to last year. The increase was also supported by 62 per cent y-o-y jump in profit of the general insurance business.
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