Bajaj Finance's Q3 shows stress in consumers’ pockets

Auto loans, B2C, and B2B consumer durables loans face the heat

The devil is in the details. The saying would have never been truer than now for Bajaj Finance, which published its December quarter results after market hours on Wednesday.

While the Bajaj Finance stock is a bit off from its all-time high of ~5,372 it touched just ahead of the new year, for investors it may be time that they review their stance. They earlier had brushed aside some critical concerns — that of growth and asset quality, owing to the lender’s leadership in the consumer finance business and also its ability to procure capital at the lowest ever price (blended cost of funds — 7.78 per cent in Q3) among non-banking finance companies.

The gross NPA ratio in Q3 at 0.55 per cent seems to be the lowest-ever for the company. However, in the absence of the Supreme Court’s standstill order, this number would have shot to 2.86 per cent, a tad higher than the post-demonetisation NPA level.

A granular portfolio analysis indicates that the mainstay segments, such as consumer finance and lending to small businesses, have seen a huge increase in gross NPA ratio in Q3 and part of it can be attributed to the restructuring exercise. While auto loans performed the worst, with stress increasing by about 600 basis points (bps) year-on-year (YOY) in Q3, retail consumer durables loans (urban and rural) saw 200-231 bps spike in gross NPA ratio. The wholesale consumer durable loans also witnessed 100-150 bps year-on-year increase in Q3.

Detailed asset quality break-up for Q2FY21 is not available. When numbers are compared against the June quarter, when customers availed moratorium and there was no standstill on NPA recognition, the scenario is not comforting.

Clearly, the pandemic has taken a toll on the wallets of customers, whether salaried or self-employed, and borrowers seem willing to let go of their loan obligation when times are tough. This also suggests that collection efficiencies may just gradually return to pre-covid levels and not as fast as the

Street had anticipated. “It looks like we have seen many cycles in just nine months and volatility of ups and down has been unpredictable,” said Rajeev Jain, MD, Bajaj Finance.

This is also indicated by ~1,352 crore of elevated provisioning in Q3, up 63 per cent YOY. Provisioning in Q4 is anticipated at ~1,200-1,250 crore. Q3 also saw a one-time write-off of ~1,970 crore due to Covid-related stress and the available provisioning buffer is now at ~800 crore. Consequently, net profit for Q3 fell 30 per cent year-onyear to ~1,049 crore, the fourth consecutive quarterly decline, and was short of consensus estimate of ~1,293 crore.

Importantly, from returning to normalcy in June 2021, the ballpark has slightly moved to the first half of FY22. Recently, Shweta Daptardar of Prabhudas Lilladher downgraded the stock from “buy” to “accumulate”, citing the stock is priced to perfection. With challenges persisting, Bajaj Finance’s tall valuation of 8.4x FY21 estimated book will be further tested.