Fundamental Pick

Bajaj Finance – Digital strategy to drive next phase of growth

Bajaj Finance is a leading NBFC (nonbanking finance company) in the consumer finance space, and it has recently entered housing finance where it has grown to a significant size. It is also one of the consistent wealth generators for investors with more than 5X returns over the last five years.

Expected long term target: 50% upside over the next two years

Data as on 30^th April 2022

Highlights of Q4FY22 results

Bajaj Finance released its Q4FY22 numbers and due to strong AUM growth of 29% YoY, posted stellar earnings growth with NII growth of 30% YoY to Rs 6,064 crore and PAT growth of 80% YoY to Rs 2,420 crore.

The AUM growth also gained traction as it was up 29% YoY to Rs 197,500 crore, which was primarily driven by 27% YoY growth in Consumer B2C while Consumer sales finance business grew 30%, SME and Mortgage also saw steady 24% growth to Rs 24,979 crore and Rs 61,701 crore respectively.

Deposit growth for Bajaj finance was up 28% YoY to Rs 30481 crore. The housing finance arm BHFL AUM grew by 37% to Rs 53,322 crore as of March 31, 2022.

Bajaj Finance’s FY22 revenues stood at Rs 31,640 crore, a YoY increase of 18.6%. This is an encouraging number considering that revenue grew only by 1.1% in FY21. Prior to FY21, the company has registered more than 30% YoY growth in each of the three preceding years.

Similarly, the profits in FY22 stood at Rs 7,028 crore, a YoY growth of 59%, albeit on a low base. Except for FY21, which had a negative YoY growth, the company’s profits grew by large margins in the preceding three years.

Coming to the segments of the business, not all segments performed equally in FY22. The auto finance segment saw declining growth in all quarters of FY22. The consumer B2C saw a steady YoY growth in all quarters with a 27% YoY growth in Q4FY22. The rural B2B segment saw above 35% YoY growth in quarters of FY22.

The highest growing business segment in Q4FY22 was the securities lending segment with a YoY growth of 163% in Q4FY22.

New product offerings to offer ample cross selling opportunities

Bajaj Finance over the years has ventured into distribution of other financial products apart from lending. The insurance marketplace went live in March 2022 offering 4 motor insurance products, 9 health insurance products, 8 asset insurance products and 345 pocket insurance products. Its website key features include compare, review, buy policies, service section including policy documents, claims request and updating of policy details.

The investments marketplace in partnership with Bajaj Finserv Direct Ltd. went live in February 2022 offering various mutual funds and fixed deposit options to customers. Its key features include options to explore and invest, seamless onboarding for existing mutual fund investors, easy online KYC process for new investors, various investment calculators, portfolio view etc.

Investments in technology towards digital growth strategy

The web remains an extremely important driver of traffic, volumes, and service to customers in the digital space. As part of its Omnichannel strategy, the company is building a web platform which will provide a platform agnostic experience across web and app.

In FY23, the company will completely transform web experience enabled by a common technology infrastructure layer between app and web. The UI/UX will be identical to digital app platform for ease of navigation and customer experience. The new digital web platform will also have significant expansion of content infrastructure to drive search traffic. Once implemented, the digital web platform will offer a consistent experience across both app and web and customers will be able to commence journey on one platform and conclude it on the other platform. Phase 1 of web platform will go live by October 2022 and phase 2 by March 2023. Post implementation of both phases, customers will get full-service platform agnostic experience.

Along with the digital strategy, in Q4FY22, the company added 81 new locations to its distribution footprint. Total geographic footprint stood at 3,504 locations and 1,33,200+ distribution points. In FY22, the company added 516 new locations. The company continues to invest in branches in underpenetrated markets like UP, Bihar and north-eastern states.

Is Bajaj Finance still an attractive investment?

Bajaj Finance has consistently delivered superior returns to investors. Evaluation of data for the past 3 years, indicated that it has an annual revenue growth of 25.6% CAGR and net profits have grown by 18.2% CAGR. These numbers are way higher than its peers in the banking and NBFC space.

Initiatives in digital strategy as well as expansion of product range into distribution of insurance and other financial instruments present a big opportunity to cross sell to an existing large customer base. Bajaj Finance is also expected to get a licence to start its own mutual fund AMC.

Bajaj Finance fits the criteria of an investment candidate at this point of time. However, it is important to note that investors need to invest for a long term in this stock as recent initiatives will take a few quarters to play out and investors need to ride out the time.