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Bajaj Finance Ltd: What is the Future?

Bajaj Finance Ltd (BFL) is a subsidiary of Bajaj Finserv Ltd and is engaged in the business of lending, and acceptance of deposits.

The Company has a diversified lending portfolio across retail, SMEs and commercial customers with significant presence in urban and rural India. It accepts public and corporate deposits and offers variety of financial services products to its customers.

BFL is present in 2,988 locations across India, including 1,690 locations in rural / smaller towns and villages. It focuses on six broad categories: (i) consumer lending, (ii) SME lending, (iii) commercial lending, (iv) rural lending, (v) deposits; and (vi) partnerships and services.

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(A) Executive Board Members of Bajaj Finance

i) Mr Rajeev Jain - Managing Director

Mr Rajeev Jain is the Managing Director of the Company. He has been associated with the Company for over a decade. Mr Rajeev Jain joined Bajaj Finance in 2007.

He is 51 years old. Further, He has more than 22 years of experience in the consumer lending industry. Moreover, he has worked in GE, american Express and AIG. Also, he has vast experience in lending business viz auto loans, durable loans, personal loans and credit cards.

When Mr Jain joined the company in 2007, it was a small, captive auto finance company. Today, it is a giant in comparison.

Further, his remuneration for FY21 was Rs 9.72 Cr being 0.04% of the Net Sales and 0.22% of the Net Profit.

(B) Journey Since Inception : Bajaj Finance

1997-1999

In 1997 Bajaj Finance Ltd (then known as Bajaj Auto Finance Ltd) was incorporated. In 1998, it was registered with RBI as Non-Bank Company.

2010-2015

Further, in 2010 the Company changed its name from Bajaj Auto Finance Ltd to Bajaj Finance Ltd in 2012 the Company launched India's first EMI (Existing Member Identification) card and Flexisaver.

2017-18

Further, Bajaj Finance Ltd picked up ~11% stake in mobile wallet major Mobikwik for ~Rs 225 Crore.

2019

In H2-2019 Bajaj Financial Securities Ltd started its operations.

(C) Shareholding Pattern: Bajaj Finance

Bajaj Finance Shareholding Pattern
Bajaj Finance More than 1% shareholding

(D) Bajaj Finance Group Structure

Bajaj Finance Group structure

Bajaj Finance Ltd has Two Subsidiaries:

i) Bajaj Housing Finance Limited (BHFL) is a housing finance company and is a 100% subsidiary of Bajaj Finance Ltd. It offers products to consumers, corporate entities, builders and developers. BHFL started its lending operation from July 2017.

ii) Bajaj Financial Securities Limited is also 100% Subsidiary of Bajaj Finance Ltd and offers wide spectrum of Capital Market Solutions to corporates, high-net-worth individuals and families. Bajaj Finance Securities started its business operations from August 2019 with a strategy to ring fence Loan Against Securities (LAS) customers of BFL by providing them a full suite of investment products and services. As on 31-Mar-21 The Company has a base of approximately 42,900 customers.

(E) Geographical Footprint Bajaj Finance

As on 31-Mar-21 the total geographic footprint of Bajaj Finance stood at 2,988 locations and 1,10,300+ distribution points. Further, these branches are spread across 21 States and Union Territories in India. Also, 1,690 out of these 2,988 locations are in rural / smaller towns and villages.

As on Q3 FY22 Geographic footprint stood at 3,423 locations and 1,28,300+ distribution points. In Q3 FY22, the Company expanded in 94 new locations. The Company is investing deeply in UP and Bihar to reduce concentration risk and create new growth opportunities.

Further, Company's 100% Revenue is from India only.

As on Q3 FY22, the Company has 1,368 Urban Lending branches and 2,055 Rural Lending branches.

Bajaj Finance active distribution network

(F) AUM: Bajaj Finance

Bajaj Finance AUM

The AUM of Bajaj Housing Finance Ltd stood at Rs 38,871 crore as on 31-Mar-21. Moreover, Commercial lending business closed FY2021 with AUM of Rs 8,293 crore, recording a growth of 29%. At the end of FY21 the AUM of Loan Against Securities stood at Rs 6,054 crore.

(G) AUM Across Business Categories

Bajaj Finance AUM Segments

Bajaj Finance Ltd (BFL) has a diversified lending portfolio across retail, SMEs and commercial customers with presence in both urban and rural India. It accepts public and corporate deposits and offers variety of financial services products to its customers.

It focuses on six broad categories: (i) consumer lending, (ii) SME lending, (iii) commercial lending, (iv) rural lending, (v) deposits; and (vi) partnerships and services.

Consumer Lending:

BFL continued to be the dominant lender for consumer electronics, furniture and digital products in India, and financed 8.9 million consumer electronics and digital products purchases in FY21.

Bajaj Finance remained the largest financier of Bajaj Auto motorcycles and three-wheelers in FY2021. There was an increased demand for personal mobility during the pandemic.

During FY21 it financed purchase of over 614,000 motorcycles and about 59,300 three-wheelers in FY2021. This constituted over 34% of domestic sales of Bajaj motorcycles and 54% of domestic sales of Bajaj three-wheelers.

Personal Loans

The SPL business AUM grew by 7% over FY2020 to Rs 12,101 crore. Salaried personal loans saw much faster recovery in portfolio quality and volumes compared to other businesses

SME Lending

Offers unsecured and secured loans to small businesses. SME lending consists of working capital loans and term facilities to SMEs, MSMEs and professionals. Secured loans to SME and MSME customers are offered against their home, office or four-wheeler.

Rural Lending

BFL offers all its lending and deposits products which include consumer B2B lending, personal loans, gold loan, retail deposits etc. in small towns and villages through its rural lending business. In FY21, BFL expanded its rural lending footprint adding 333 locations and deepening its rural geographical presence. At the end of FY2021, it was present in 1,690 locations across 21 states and union territories in India

Commercial Lending

The Commercial Lending business focuses on acquiring quality corporate customers, deepen relation with them and ensure value add through offering of varied products in the form of working and growth capital loans. Commercial lending business closed FY2021 with AUM of Rs 8,293 crore, recording a growth of 29%.

Loan Against Securities

Loan against securities business offers medium-term and short-term financing against shares, bonds, mutual funds, insurance policies and deposits to customer across retail, High Net worth Individual (HNI) and promoter categories. BFinsec offers various investment services like demat services, broking, margin trade financing and financing of offer for sale. The business grew on the back of buoyant financial markets in the second half of the year; and closed FY21 with AUM of Rs 6,054 crore, recording a growth of 26%.

(H) Bajaj Finance: Borrowing Mix

Bajaj Finance Borrowing Mix

(I) Gross NPA

Bajaj Finance gross npa

Indeed, BFL’s consolidated Gross NPA at 1.79% and Net NPA at 0.75% are among the lowest in the NBFC industry

(J) Net NPA

Bajaj Finance net npa

(K) Bajaj Finance: Interest Parameters

i) Interest Income

CAGR of Interest income is 28% over last 10 years.

Bajaj Finance interest income

ii) Interest Expend

Bajaj Finance interest expend

iii) Net Interest Income

CAGR of net interest income over last 10 years is 27%.

Bajaj Finance interest income

(iv) Net Interest Margin (%)

Net Interest Margin

(v) Cost to Income %

(L) Financial Parameters

Bajaj Finance financial parameters

Capital adequacy remained very strong at 28.34% as of 31-Mar-21. PAT grew at CAGR 30% p.a. from FY12 to FY21.

(M) Market Positioning of Bajaj Finance Ltd

  1. In consumer durable financing (7% of consolidated assets under management (AUM)), Bajaj Finance holds over 65% market share in financed sales in over 57,000 consumer retail stores in which it operates. The company’s retail store penetration has increased over the years and the total customer base grew at a CAGR of 25% over FY16-FY21. The customer base grew 20% yoy in 9MFY22.
  2. Bajaj Finance has been consistently earning robust net interest margin of above 9% since inception, led by a high-yielding loan portfolio (16%-17%) and competitive cost of funds. The softening in funding cost in FY21 by more than 100bp from FY20 levels helped BFL maintain margins even when interest reversals increased due to asset quality stress.
  3. The company plans to invest in the technology infrastructure for superior and seamless customer experience which can increase the number of transactions and volume. These investments would have a bearing on operational cost over the next one-to-two years. But could show results in the long run. BFL’s ability to manage credit cost and drive down operating cost on a sustainable basis will be critical in further improving the profitability matrix.

(N) Management Discussion & Concall Highlights

In FY21 BFL continued to be the dominant lender for consumer electronics, furniture and digital products in India, and financed 8.9 million consumer electronics and digital products purchases in FY2021. This segment saw some shift in consumer preferences as a result of changed lifestyles amidst the pandemic.

Further, the deposits book in FY21 stood at Rs 25,803 crore.

In FY22 the management's focus was on capital management, achieving abundant liquidity, lowering opex, strengthening underwriting, and expanding collections and servicing capabilities.

Further in FY21 the rural business grew at a healthy pace, which is reducing the risk in the B2C business and SME lending.

Largest Financier of Bajaj Auto Motorcycles and three-wheelers

Bajaj Finance remained the largest financier of Bajaj Auto motorcycles and three-wheelers in FY2021. Further, there was an increased demand for personal mobility during the pandemic. However, during FY21 BFL tightened its credit norms on new acquisition to acquire better customers. Also, it financed purchase of over 6,14,000 motorcycles and about 59,300 three-wheelers in FY21. Further, this constituted over 34% of domestic sales of Bajaj motorcycles and 54% of domestic sales of Bajaj three-wheelers.

Concall Highlights Q3 FY22

Bajaj Finance Ltd's board has approved infusion of ₹ 2,500 crore of equity share capital in BHFL to support its capital needs for next 24 months.

At Q3 FY22, Consumer business forms ~34% of overall consolidated AUM.

As per the Management Asset quality performance was healthy. further for Q3 FY22 Costs were under control. Further, Q3 FY22 Top 20 dealers contribute ~20% of incremental disbursement.

Further, New customer addition guidance is upped from 70-80 lakh per year to 80-90 Lakh on the back of robust infrastructure.

(O) Strengths

i) Diversified Lending Mix

Bajaj Finance has Loan Segments such as mortgages, small business loans, and commercial lending are focused on building scale, while consumer durable loans, personal loans, and 2- and 3-wheeler financing are focused to maximise profit.

ii) Strategic Important Subsidiary and Part of the Bajaj Group

Bajaj Finance Ltd (BFL) is strategically important to the Bajaj group, the company gets significant financial, managerial and operational support from its parent, Bajaj Finserv. It also derives synergies from being a captive financier for Bajaj Auto Ltd. Also, BFL is one of the crucial entities of the group's financial services business, and its established track record of profitable growth enhances its strategic importance. BFL also plays a critical role in helping Bajaj Auto meet its sales targets and maintain market share; it financed around 36% of Bajaj Auto's sales volume in fiscal 2021, from 20% in fiscal 2010.  

Further, in the unlikely event of BFL requiring group support in an extraordinary situation, Bajaj Holdings and Investment Limited has ample liquidity in the form of cash and bank balances and portfolio of quoted investments to address the requirements.

(P) Weakness

Risky asset class of Bajaj Finance

Bajaj Finance has high exposure to asset segments such as personal loans and consumer durable loans (including life-style and digital loans), 2 and 3-wheeler finance, and unsecured business loans, which constituted around 55% of its standalone loan portfolio as on December 31, 2021, which are vulnerable to economic cycles. Further, BFL offers flexi loans option which has moratorium on repayment of principal across segments including consumer B2C, SME and Mortgages.

Also, Read about Mahindra & Mahindra Financial Services. CLICK HERE

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References:  Annual Reports, News Publications, Investor Presentations, Corporate Announcements, Management Discussions, Analyst Meets & Management Interviews, Industry's Publications.

Disclaimer: The report only represents personal opinions and views of the author. No part of the report should be considered as recommendation for buying/selling any stock. Thus, the report & references mentioned are only for the information of the readers about the industry stated.

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