Recommendation From Finance Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year

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LEND POWER TO YOUR INVESTMENTS WITH BFL

BAJAJ FINANCE 

BSE Code: 500034
CMP: Rs.1809
FV: Rs.2
BSE Volume: 16821 

HERE IS WHY
Strong AUM growth due to consumer finance and SME segments
Favourable borrowing mix to drive revenue
Reduction in borrowing cost to lower the cost of funds going forward

Bajaj Finance Limited (BFS) is one of the fastest growing non-banking finance company (NBFC) in India . Engaged in lending and allied activities, BFS focuses on consumer lending, small and mediumsized enterprises (SME) lending, commercial lending, rural lending, fixed deposits and value-added services. It is engaged in distribution of life insurance, general insurance and mutual fund products. 

Cross-selling of products : The loan book of BFL has compounded at 36% over FY12-FY16 due to its active churning of portfolio products. Despite strong growth in loans, the asset quality and provisioning remain among the best in the market. Healthy product mix and a balanced product portfolio is what makes the company a unique player in the industry.

The company's diversified portfolio containing different range of products offers good scope for cross-selling to its customers. BFS is able to retain its client base and is successful in reducing the client acquisition costs, while it continues to thrive in issuing an EMI card for faster loan appraisal for its customers. 

Strong retail credit demand : BFL has benefitted from strong retail credit demand reflected in its AUM CAGR of 36% over FY12-FY16. At the same time, diligent lending has resulted in stable margins (NIMs 10.8%) and healthy return ratios (ROAA 3.2%, ROAE 20.9%). 

BFL has reduced the overall time for loan applications from a few hours to 15 minutes, thus allowing it to compete with credit cards in this segment. The overall time is maintained due to large in-house database and better data availability with CIBIL. 

Financials : On the financial front, BFL posted a rise of 32.14 per cent to Rs.3,086.24 crore in Q2 of FY18, as against Rs.2,335.50 crore in the same quarter previous fiscal. The company's PBIDT increased 25.88 per cent to Rs.2,007.27 crore in Q2 FY18, as compared with Rs.1,594 crore in the same quarter of the previous fiscal. The net profit of the company increased 36.58 per cent to Rs.556.90 crore in Q2 of FY18, as compared to Rs.407.76 crore in the Q2 FY17.

On the annual front, the company's net sales grew by 34.36 per cent to Rs.9,272.33 per cent in FY2017, as against Rs.6,901.19 crore in the previous financial year. The company's PBIDT increased 35.82 per cent to Rs.6,666.10 crore in FY17 as compared with Rs.4,907.93 crore in the previous financial year. The company's net profit rose 43.65 per cent to Rs.1,836.55 crore in FY2017, compared with Rs.1,278.52 crore in the previous fiscal. 

With the consumption growth story intact in the Indian economy, BFL is an appropriate investment option at this point of time. We recommend BUY on the stock keeping in mind BFL's unique business model and its stronghold in consumer durable (CD) and lifestyle product financing business..