Bajaj Finance Ltd (BFL) (CMP - 2293, NSE:BAJFINANCE) is a financial lending company from the Rahul Bajaj group. The company is involved in multiple areas of lending in 3 verticals - retail (consumer), SME & Commercial with a split of 40:50:10 as of now. The company is looking to increase the commercial loan book to 20%.
The NBFC sector is growing consistently. Consumer finance is growing very fast. This is reflected in the growth of the company in the past as well as anecdotal experience at all consumer electronics stores and auto dealerships. With more and more consumption-driven culture and higher disposable incomes (specially in urban centers with double income families), consumer loans is likely to grow well for a very long period of time. Indian penetration of consumer loans / GDP is 11%, whereas it is 20% for China, 23% for Brazil, 54% for Germany and 99% for US. Even at the lower end of the spectrum, there is an opportunity to double the loan/GDP ratio.
In 2 wheeler finance, BFL has a 18% market share. It is the largest 2-wheeler lender in India focused on semi-urban & rural markets. Currently contributes to 30% of Bajaj Auto's 2 domestic wheeler sales.
It has a 15% market share in consumer electronics finance in India and is the largest in India.
The market is very fragmented with other NBFCs and banks in the fray. BFL has a competitive advantage of being from the Bajaj group so will get a first shot at customers buying Bajaj 2-wheelers.
A lot of banks & NBFCs are in the space. Main competitor is HDFC Bank, followed by other NBFCs like Sundaram Finance, Shriram City Union etc.
BFL has two major advantages - i) it is already entrenched in Bajaj Auto dealerships and gets an advantage in sourcing customers in the 2-wheeler business and ii) it is well entrenched in the large malls / electronic stores/chains for consumer electronics loans. It is not going to be easy to replicate the reach by others.
- In FY2014, BFL’s total income was up 31% to 4,073 crore
- Profit before tax (PBT) increased by 25% to 1,091 crore
- Profit after tax (PAT) was up 22% to 719 crore
- BFL’s assets under management rose by 37% to 24,061 crore
- Loan deployment had risen by 34% to 26,024 crore.
- Consumer lending grew by 36%
- Small and medium enterprise (SME) lending grew by 52%.
- Commercial lending de–grew by 11% due to the company’s cautious stance on the precarious state of India’s infrastructure sector
- Capital adequacy as on 31 March 2014 was 19.14%, is well above the RBI norms
- BFL’s net NPAs were at 0.28% of total assets
- Present in 117 cities of India, BFL continued to be the largest consumer durables lender in country — and helped finance 15% of all consumer electronics sold in the year.
The stock is available at a PE of 15 and a P/B of 2.7 which seems reasonable in an environment where all stocks have been bid up aggressively. BFL has good consistent profit growth of 87% over 5 years and a sales growth of 47% over the same duration, which has been rather difficult for the Indian economy. With any improvement in the economy and reduction of interest rates, BFL is well poised to outperform the industry and provide good growth over the longer term.
Note:- I am invested in the stock and thus have a vested interest. Please consult your financial advisor or do your own due diligence before investing.
