Assets Under Management AUM

Bajaj Finance experienced good growth; What about the quality of the assets?

As such, shares of the non-bank financial corporation (NBFC) have jumped 46% since the start of the year, leaving the larger Nifty far behind. Even shares of peers such as SBI Cards and Payment Services Ltd, which offer close competition, are pale compared to the consumer lender’s earnings. However, since most lenders seem to be showing this encouraging trend, the consumer lender needs to do more to keep investors interested and valuations acceptable.

Rapid rebound

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Bajaj Finance, in an exchange filing late Tuesday, said it added 2.4 million new customers in the September quarter. This is 26% more than the previous quarter and double the number of customers added a year ago.

New customers represented 62% of the total borrower base, up from 59% in the previous quarter. In addition, new loans increased 37% sequentially and 75% from the previous year.

All of this led to a decent 5% growth in assets under management (AUM) on a sequential basis.

“The 2QFY22 activity update seems to suggest that there has been a rapid normalization between business segments and this trajectory would continue into 2HFY22E as well, with a return on assets / return on equity likely to rebound to 3.8% / 18.2% in FY22E, ”analysts at Motilal Oswal Financial Services Ltd wrote in a note.

Additionally, the lender is looking to enter the payments market with Bajaj Pay. The lender launched a wallet business in July that sees it approaching a million wallets every month. In an interaction with analysts last month, Bajaj Finance management said the goal is to get 20-25 million portfolios by the end of March 2023.

Bajaj Finance has steadily improved the growth of its assets under management in the aftermath of the pandemic. Business was hit again in the second wave of the covid-19 pandemic, but has rebounded since then. This gives investors enough reason to remain confident in the company’s growth path.

In previous interactions, the company has indicated that Bajaj Pay will be a single point of access to a multitude of payment solutions for its customers. The portfolio industry is part of this ecosystem. The lender aims to obtain a license to be a payments aggregator.

All of this is likely to help the lender on the growth front. In addition, the transition from a pure lender to a more complete fintech company would also be favorable for valuations.

That said, for valuations to improve, the lender must offer asset quality.

The June quarter was uncomfortable on this front as gross bad debt increased to 2.96% of the total portfolio, compared to 1.79% in the previous quarter. Borrowers of all categories have shown increased stress with auto loans and small business loans in particular showing an increase in delinquencies.

Investors would like to know how the lender was able to control these stress points on its balance sheet during the September quarter.

A reduction in stress would bode well for provisions and therefore for profitability.

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In a September 23 report, analysts at ICICI Securities Ltd pointed out that the lender may see an improvement in the quality of its assets in the second half of fiscal year 22.

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