Bajaj Finance (BFL) reported net profit of Rs 138.7 cr (52.4% YoY) in Q1FY13 exceeding the expectations. Loan losses and provisions for Q1FY13 declined 20.6% QoQ and 6.4% YoY. Asset quality remained healthy during the quarter with gross NPA declining by 6 bps and Net NPA declining by 2 bps.
- Net interest income witnesses robust growth Net Interest Income increased 47.2% YoY and 18.7% QoQ to Rs 403 cr in Q1FY13 resulting from the strong growth in disbursements. The benign competitive environment coupled with stable demand helped the company to protect its margins despite a tough economic scenario.
Growth momentum in disbursements continues
Disbursements continued to witness momentum with a growth of 12.4% QoQ and 31.8% YoY to Rs 4,728 cr. The companys Consumer business segment benefited mainly due to high replacement demand for ACs, benign competition and high entry barriers. The companys SME business continued to grow in a healthy manner due to companys sharp focus on customer segmentation. Construction equipment business declined due to the companys cautious stance on the sector as a whole.
Strong growth in asset under management
Asset under management grew by 60.5% YoY and 10.5% on QoQ basis at Rs 14,485 cr. Management expects its Assets Under Management (AUM) to grow 25-30% in FY13E. Number of new customer acquired stood at 752,231 in Q1FY13 vs. 543,092 in Q1FY12, a growth of 38.5%.
Continues to maintain best in class asset quality
Gross NPAs declined by 6 bps on QoQ basis to 1.1% and net NPAs declined by 2 bps on QoQ basis to 0.1% thereby indicating an improvement in the companys asset quality. The asset quality across all business except Construction Equipment remained steady in Q1FY13.
We had recommended BFL on 13th July 2011 at Rs 686 with an initial target price of Rs 806 which was achieved. We further upgraded the target price to Rs 1,022 in our Q4FY12 update dated 18th May 2012 and the stock is currently trading near our target price generating 47.2% return over the period.
As BFL commands market leadership we believe that it will demand premium valuations going forward. Moreover, the gap between the valuations of Bajaj Finance as compared with the larger players in the NBFC space has been narrowing resulting from the steady and consistent performance of the company. Consequently, we have revised our target multiple for the stock from 1.8x to 2x on FY13E ABV (which is in line with its peer group) and arrive at a target price of Rs 1,170 indicating further upside of 18% from current levels.
At CMP the stock is trading at 1.69x FY13E ABV and 1.38x FY14E ABV and 7.98x FY13E and 6.52x FY14E EPS.