Multi Baggers

Bajaj Auto Finance

Bajaj Finance, Bajaj Auto Finance upto 5th September 2010, is a 54.79% subsidiary of Bajaj Group’s financial services HoldCo, Bajaj Finserv Limited. The company became a subsidiary of Bajaj Finserv with effect from 5th July 2010, due to an inter-se promoter transfer of 5.78% stake in the company, previously held by Bajaj Holdings and Investment Limited. Also, on 8th September 2010, it further increased the stake, through acquisition of 4.37% from ChrysCapital at Rs. 695 per share.

Bajaj Finance, one of India’s leading and diversified NBFCs, is engaged in the business of financing two and three wheelers, consumer durables, personal loans, small business loans and mortgages (loan against property). It operates as ‘Bajaj Finserv Lending’.

In the quarter gone by, the company ventured into financing of construction equipment and loan against securities. Very recently, it has also announced plans to enter the fast-growing infrastructure financing space, to widen its product line. To begin with, it plans to offer infrastructure loans in the ticket size of Rs. 75 to 150 crore.

The company has a pan-India network of over 63 branches, about 2,300 employees, 2,500 dealerships and a customer base of over 50 lakh.

For FY10, the company’s fund deployment increased by 87% to Rs. 4,585 crore, from Rs. 2,451 crore in FY09. The break-up of the loan deployment during FY10 comprised 30% of two and three wheeler loans, 26% towards mortgage and secured assets, 23% for consumer durables loan while balance was towards small business and personal loans.

The company’s shareholding pattern is wide-spread, as can be seen from the filing on 30th June 2010, where-in promoters held 50.50%, FIIs held 16.58%, DIIs held 8.59% and Maharashtra Scooters (a Bajaj group company) held 4.48% under non-promoter category. 

During FY10, the company registered income from operations of Rs. 910 crore, up 53% from Rs. 595 crore in FY09. Net interest income grew by 64% to Rs. 715 crore from Rs. 435 crore in the previous year. The net profit more than doubled to Rs. 89 crore versus Rs. 34 crore in the previous year. Net margins also improved steadily by 410 basis points in the 12 months period, to 9.8% from 5.7%. 

On equity of Rs. 36.6 crore, EPS for FY10 stood at Rs. 24.43. It declared 60% dividend (Rs. 6 per share) for the year. Return on assets (RoA) improved sharply to 2.8% in FY10, from 1.3% in FY09.

As on 31st March 2010, the company’s receivables under finance i.e. loan book size stood at Rs. 4,026 crore, up 70% from Rs. 2,370 crore 12 months ago. Its networth, as on that date, was Rs. 1,153 crore and total borrowing was Rs. 3,227 crore. The company’s capital adequacy ratio, as on 31st March 2010, stood at 26%, as against RBI’s requirement of 12%. 

During Q1FY11, the company reported very strong growth in its financial performance. During the first three months of FY11, it disbursed Rs. 2,047 crore in loans, recording income from operations of Rs. 296 crore and net interest income of Rs. 224 crore. It earned Rs. 47 crore in PAT during the quarter, on net margin of 15.8%, an improvement of 600 basis points from the FY10 levels.

The EPS for the quarter rose to Rs. 12.78, more than half of what was earned in full year of FY10. As on 30th June 2010, its loan book size increased to Rs. 4,937 crore and networth stood at Rs. 1,199 crore, resulting in a book value of Rs. 328 per share.

For FY11, the company is expected to report topline of Rs. 1,200 crore and bottomline of about Rs. 180 crore, resulting in an EPS of close to Rs. 50. At current market price, share price is being discounted by 15.1 times its one year forward earnings. On a PBV basis, it is ruling at a multiple of 2.3 times.

Other NBFCs, which have lately attracted market fancy, including Shriram Transport Finance and M&M Financial Services, are ruling at PE multiples of close to 20 times and at P/B multiples of 4.2 and 3.3 times respectively.

Considering the strong financial performance, new product line and Bajaj group pedigree, share at 755 is recommended as an investment bet, as it has potential to touch 900 in 6 months time.

BSE Code: 500034

NSE Symbol: BAJAUTOFIN

Disclosure: No holding in the stock