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Rating Upside
BUY (■) 19.3 %
Our recent channel checks re-affirm BAF’s improvements in customer sourcing and Change in Estimates
collection efficiencies while leaving limited room for errors. We expect its stellar EPS Chg FY20E/FY21E (%) -/-
performance to continue on increasing penetration and diversified liability franchise. Target Price change (%) 21.8
We factor in some pull-back in NIMs, dominantly on the expansion of low-yield housing Target Period (Months) 12
portfolio. We also expect operational leverage to kick in, keeping PBT margins intact. Our Previous Reco BUY
credit cost estimates remain unchanged, considering improved customer sourcing. Emkay vs Consensus
We reiterate our theme around BAF being a pure-play India consumption story. We EPS Estimates
assume AUM CAGR of ~34% over FY18-21E, backed by solid cross-sell franchise. We FY20E FY21E
expect a 33% EPS CAGR and 22-23% medium-term RoE during FY18-21E. Emkay 85.3 110.0
Maintain Buy on the stock and roll forward to FY21E with a revised TP of Rs 3,618 (P/B Consensus 88.4 115.9
6.8x FY21E and P/E 32.9x FY21E). Though we are not building any capital issuances, Mean Consensus TP (12M) Rs 2,909
dilution of Rs80bn during H2FY20 is fair assumption, easing premium valuations. Stock Details
Bloomberg Code BAF IN
Outstanding collection and recovery procedures: Our recent channel checks on Face Value (Rs) 2
BAF’s in-class, incentive-driven, specialized and deeply penetrated collection and
Shares outstanding (mn) 578
recovery system have driven our thesis on the company’s ability to maintain low credit
52 Week H/L 3,132 / 1,818
costs while increasing its asset base. We are believers in the premise that the success of
a lender’s business hinges on its ability to recover dues in a timely and an efficient M Cap (Rs bn/USD bn) 1,753 / 25.17
manner. Understanding BAF’s top-class collection and recovery system has Daily Avg Volume (nos.) 1,502,998
strengthened our conviction in its ability to keep running on the long runway. Daily Avg Turnover (US$ mn) 59.0
Long runway of AUM growth: Despite intensifying competition and a high base, we
Shareholding Pattern Dec '18
believe that now is the time when cross sell kicks in for BAF. BAF’s out-of-the-class data
analytics and growing product basket enable it to make available the new products to its Promoters 55.2%
high existing customer base of ~32.6mn. This growth should come at a lower credit cost, FIIs 20.1%
thus expanding return metrics. Our channel checks also indicate deeper rural penetration, DIIs 8.8%
fueling BAF’s geographic expansion. Public and Others 15.9%
NIM compression unavoidable; operating leverage holds the key: In our view, BAF
Price Performance
could see some margin compressions over the next two years (from ~9.8% in FY19E to
~8.9% in FY21E), dominantly on account of the expansion of low-yielding housing book. (%) 1M 3M 6M 12M
We see this as its management’s positive intent to diversify risks and manage them better. Absolute 6 18 31 56
In addition, NIM compression is not expected to reduce PBT margins as operational Rel. to Nifty 3 9 18 39
leverage is expected to kick in.
Relative price chart
Outlook and valuations: Though BAF currently trades at rich valuations (P/B 7.1x 3125 Rs % 50
FY20E and P/B 5.7x FY21E), we understand that its aggressive growth would require a 2860 38
capital infusion over the next 12-24 months, driving valuations down. Accordingly, we 2595 26
maintain Buy rating on the stock with a revised TP of Rs 3,618 (P/B 6.8x FY21E and P/E 2330 14
32.9x FY21E), without factoring in the equity infusion. Maintain our OW stance in our EAP 2065 2
- NBFCs. Key risks include substantial build-up of consumer leverage and a prolonged 1800
Apr-18 Jun-18 Aug-18 Oct-18 Dec-18 Feb-19
-10
Apr-19
Source: Bloomberg
Please see our sector EAP (Page 7): Emkay Alpha Portfolio – BFSI-NBFCs This report is solely produced by Emkay Global. The
following person(s) are responsible for the production
of the recommendation:
Financial Snapshot (Consolidated)
(Rs mn) FY17 FY18 FY19E FY20E FY21E Jignesh Shial
Net income 61,885 88,316 118,125 148,550 189,016 jignesh.shial@emkayglobal.com
Net profit 18,364 26,741 38,539 49,061 63,258 +91 22 6624 2468
EPS (Rs) 33.7 47.0 67.0 85.3 110.0 Anand Dama
ABV (Rs) 171.3 285.9 342.4 420.2 522.0 anand.dama@emkayglobal.com
RoA (%) 3.3 3.6 3.8 3.6 3.5 +91 22 6624 2480
RoE (%) 21.6 20.5 21.0 21.9 22.8
Parth Sanghvi
PABV (x) 17.6 10.6 8.8 7.2 5.8 parth.sanghvi@emkayglobal.com
PE (x) 90.1 64.5 45.3 35.6 27.6 +91 22 6624 2431
Source: Emkay Research
Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the distributors of the research reports, please refer
to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore
Jul-10
Jul-11
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
Apr-17
Apr-09
Oct-09
Apr-10
Oct-10
Apr-11
Oct-11
Apr-12
Oct-12
Apr-13
Oct-13
Apr-15
Apr-14
Oct-14
Oct-15
Apr-16
Oct-16
Oct-17
Apr-18
Oct-18
P/BVPS Mean +1 SD -1 SD
Source: Company, Emkay Research
Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the distributors of the research reports, please refer to the
last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore
Exhibit 4: Growth momentum remains healthy Exhibit 5: Housing finance book earns traction
1,200 42% 3% 3% 3% 4% 4% 5% 6% 6%
100% 7% 7% 7% 7% 8%
1,000 40% 11% 12% 12% 12% 12% 13%
38% 80% 13% 12% 12% 15% 13% 12% 11%
800
37%
39%
14%
13%
13%
12%
40%
44%
42%
13%
37%
13%
30%
36% 60%
600
34%
400 40%
40%
39%
39%
32%
38%
39%
39%
47%
46%
44%
45%
44%
43%
42%
200 30% 20%
0 28% 0%
Q1FY17
Q3FY14
Q4FY14
Q1FY15
Q2FY15
Q3FY15
Q4FY15
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18
Q1FY19
Q2FY19
Q3FY19
Q1FY17
Q3FY16
Q4FY16
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18
Q1FY19
Q2FY19
Q3FY19
AUM (Rs bn) Growth (% yoy; RHS) Consumer SME Commercial Rural
Source: Company, Emkay Research Source: Company, Emkay Research
Exhibit 6: NIMs witness a sequential rise Exhibit 7: Asset quality worsens on IL&FS provisioning
13.5% 2.0%
13.0%
12.5% 1.5%
12.0%
11.5% 1.0%
11.0%
10.5% 0.5%
10.0%
9.5% 0.0%
9.0%
Q3FY15
Q3FY14
Q4FY14
Q1FY15
Q2FY15
Q4FY15
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18
Q1FY19
Q2FY19
Q3FY19
Q3FY14
Q4FY14
Q1FY15
Q2FY15
Q3FY15
Q4FY15
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18
Q1FY19
Q2FY19
Q3FY19
Exhibit 8: New to Bajaj customer additions strong Exhibit 9: New loans acquired continue to be robust
2.5
3.0 8 60%
2.1
2.5 50%
6
1.8
1.8
40%
1.6
2.0
1.4
1.3
1.2
4 30%
1.1
1.0
1.5
1.0
0.8
0.8
0.7
0.7
20%
0.6
0.5
1.0
0.5
2
1.0
1.5
1.2
1.7
1.4
2.1
1.6
2.5
2.2
2.9
2.5
3.8
3.2
4.5
3.8
5.6
5.3
6.8
10%
0.5
0 0%
0.0
Q2FY15
Q3FY15
Q4FY15
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18
Q1FY19
Q2FY19
Q3FY19
Q3FY15
Q2FY18
Q2FY15
Q4FY15
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q3FY18
Q4FY18
Q1FY19
Q2FY19
Q3FY19
20% 48%
35% 31% 30% 34% 32%
0%
FY16 FY17 FY18 Q1FY19 Q2FY19 Q3FY19
Banks NCDs Tier II Debt FDs CPs CBLO
Source: Company, Emkay Research
Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the distributors of the research reports, please refer to the
last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore
Balance Sheet
YE Year End (Rs mn) FY17 FY18 FY19E FY20E FY21E
Equity 1,094 1,150 1,150 1,150 1,150
Reserves 94,909 164,306 199,985 246,186 306,584
Net worth 96,003 165,457 201,135 247,337 307,735
Deposits 0 0 0 0 0
Borrowings 492,495 644,813 904,380 1,220,494 1,605,874
Total liabilities 637,305 868,243 1,180,777 1,559,322 2,022,774
Cash and bank 3,261 3,395 9,047 10,165 12,200
Investments 40,728 31,492 36,175 48,820 64,235
Loans 582,440 819,433 1,120,122 1,483,171 1,927,176
Others 7,249 9,253 10,062 10,992 12,061
Total assets 637,305 868,243 1,180,777 1,559,322 2,022,774
Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the distributors of the research reports, please refer to the
last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore
Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the distributors of the research reports, please refer to the
last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore
9-Apr-19
18-Apr-16
15-Apr-17
12-Apr-18
16-Oct-16
13-Oct-17
10-Oct-18
29-May-18 2,077 2,375 12m Buy Jignesh Shial
17-May-18 2,067 2,375 12m Buy Jignesh Shial
10-Apr-18 1,926 2,284 12m Buy Jignesh Shial Source: Bloomberg, Company, Emkay Research
2-Feb-18 1,629 2,200 12m Buy Umang Shah
16-Oct-17 1,886 2,000 12m Accumulate Umang Shah
18-Sep-17 1,912 2,000 12m Accumulate Umang Shah
19-Jul-17 1,542 1,750 12m Accumulate Umang Shah
18-May-17 1,315 1,450 12m Accumulate Umang Shah
30-Jan-17 1,055 1,360 12m Buy Umang Shah
22-Dec-16 765 1,020 12m Buy Umang Shah
27-Oct-16 1,105 1,100 12m Hold Umang Shah
6-Sep-16 1,127 1,100 12m Hold Umang Shah
27-Jul-16 979 1,100 12m Hold Umang Shah
25-May-16 734 792 12m Hold Umang Shah
Source: Company, Emkay Research
Note:
We have updated our Rating Distribution with effect from March 20, 2019 – Kindly refer the Disclaimer page, however for our erstwhile recommendations till March 19, 2019, the rating
distribution of the expected total return stands as (Buy – Over 25%, Accumulate – Over 10% , Hold – Upto 10%, Reduce – Below 10%, Sell – Underperforms the broad market indices or its
related universe).
Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the distributors of the research reports, please refer to the
last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore
Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the distributors of the research reports, please refer to the
last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore
Sources for all charts and tables are Emkay Research unless otherwise specified.
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Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the distributors of the research reports, please refer to the
last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore
SINGAPORE
DBS Bank Ltd
Contact: Janice Chua
12 Marina Boulevard, Marina Bay Financial Centre Tower 3
Singapore 018982
Tel. 65-6878 8888
Fax: 65 65353 418
e-mail: equityresearch@dbs.com
Company Regn. No. 196800306E
THAILAND
DBS Vickers Securities (Thailand) Co Ltd
Contact: Chanpen Sirithanarattanakul
989 Siam Piwat Tower Building,
9th, 14th-15th Floor
Rama 1 Road, Pathumwan,
Nagkok Thailand 10330
Tel. 66 2 857 7831
Fax: 66 2 658 1269
e-mail: research@th.dbs.com
Company Regn. No 0105539127012
Securities and Exchange Commission, Thailand
INDONESIA
PT DBS Vickers Sekuritas (Indonesia)
Contact: Maynard Priajaya Arif
DBS Bank Tower
Ciputra World 1, 32/F
JI. Prof. Dr. Satrio Kav. 3-5
Jakarta 12940, Indonesia
Tel. 62 21 3003 4900
Fax: 62 21 3003 4943
e-mail: research@id.dbsvickers.com
Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the distributors of the research reports, please refer to the
last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore
Jignesh Shial, CA
jignesh.shial@emkayglobal.com
+91 22 6624 2468
Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the distributors of the research reports, please refer to the
last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore