Bajaj Finance - Extremely Conservative Guidance on Asset Quality

Announcing Q1 FY22 results, Bajaj Finance’s Gross NPA rose to 2.96% from 1.79% QoQ, while net NPA nearly doubled to 1.46% (as of 30.6.21) from 0.75% (as of 31.3.21). Nearly 60% of this rise in NPA during the quarter, came from the auto financing business, where net NPA rose from 4.8% (31.3.21) to 12.2% (30.6.21), followed by B2C and SME lending businesses.

Company expects to reduce overall net NPA level to 0.7-0.8% only by March 2022, with a caveat of impact of the likely third wave not seen to be severe. 0.7-0.8% net NPA level was in March 2021, while company’s pre-covid net NPA levels were closer to 0.5-0.6%. Bajaj Finance is not even aiming to reach the pre-covid level in the next 9 months, which highlights how severe is the stress is.

Launch of new mobile app and wallet is more to support existing business and not really an entry into new segments. Even in such a grim situation, the PBV multiple is sky rocketing at 9 times.

HDFC Bank’s multiples have also witnessed contraction post lower growth and rising NPAs, especially on the retail side.

Can Bajaj Finance remain an outlier? Rather, the real question is ‘for how long?’

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