By Siddharth Goel

India Ratings and Research (Ind-Ra) has assigned Bajaj Finance Limited’s (BFL) additional INR20bn long-term non-convertible debentures, additional INR5bn unsecured subordinated debt, INR250bn long-term bank loans an ‘IND AAA’ rating with a Stable Outlook. The agency has also assigned BFL’s INR50bn short-term bank loans an ‘IND A1+’ rating. A complete list of outstanding ratings is at the end of the commentary.

KEY RATING DRIVERS

The ratings are driven by Ind-Ra’s expectation of support from its ultimate parent, Bajaj Holdings & Investment Limited (BHIL), if required. BHIL holds 39.2% equity in Bajaj Finserv Limited (holding 57.5% equity in BFL) and 31.5% equity in Bajaj Auto Limited (BAL). Along with lending to diverse consumers and small and medium scale enterprise segments, BFL is a dominant and captive financier for BAL, financing a steady 30% of the total sales of two-wheelers in the domestic market. BFL’s auto finance segment is closely integrated with the parent group for planning and execution of its business strategies. 

BFL dominates market in its key loan segments. Its consumer durables loan book has 90% share of financed sales in over 8,000 consumer retail stores it operates in. BFL targets the loan book to grow at a CAGR of 25% to reach INR800bn by FY19 (INR417bn at end-December 2015) which we believe is achievable based on BFL’s strong market positioning in consumer loans and established network of branches and dealer locations.

B
FL has a healthy funding mix with 53% proportion in money market borrowings raised at competitive rates. The bank funding (around 41% share in funding) is largely at base rate levels. BFL’s capital buffers (end-December 2015; capital adequacy ratio: 19.55%; Tier I ratio: 16.07%) and healthy internal accrual ratio of around 21% support its medium-term growth plans. The existing capital base, available liquid investments and unutilised bank lines of INR59.5bn (as at end-February 2016) provide liquidity comfort to BFL’s operations.

The company’s robust pre-provision profitability to assets (9MFY16: 6.4% annualised) has remained above 6% since FY09. The strong pre-provision profitability is supported by a low cost of funds (9MFY16: 9.3%) and strong loan yields (18%). While the 150 days past due gross non-performing assets were 1.3% at end-December 2015, the company provides for stressed loans on 90dpd basis (provisioning cost as % of assets for 9MFY16: 1.3%). While the retail and business loan (including loans against property) portfolios may see delinquencies in the medium term, the healthy pre-provision profitability is sufficient to absorb credit shocks even in a stress case situation. 


BFL being a listed entity has strong investor support. Besides, BAL has a robust business profile and is the primary source of dividend for BHIL. The group has strong liquidity in the form of cash and investments to provide funding support to BFL in a contingency. The last three occasions of capital raising by BFL have had substantial group support (INR9.7bn). The cash and liquid investments as well as the short-term liquidity that can be generated on a standalone basis by BFL and by the group, provide extraordinary comfort to BFL’s creditors and would remain sufficient in the long run.



RATING SENSITIVITIES

 Ind-Ra expects BFL’s ratings to remain at the highest end of the national scale with a Stable Outlook. Rating change, if any, will depend on a decline in the ownership or support from BHIL and the reduction in BFL’s importance as a key financier to the group’s automotive sales, which is unlikely over the near-to-medium term. Significant deterioration in BFL’s asset quality or its own liquidity worsening could be negative for BFL’s ratings.


COMPANY PROFILE

BFL is a deposit taking non-banking finance company and is the finance lending arm of the Bajaj Finserv Group. It is a diversified finance company with exposure in various finance segments such as auto loans, consumer durables loans, personal loans, home loans, loan against property, unsecured loans to small and medium enterprises, loan against shares, vendor finance. The company has a pan-India reach through its near 330 branches (SME and consumer durables), over 8,000 consumer durables stores and more than 3,000 two-wheeler dealer locations. 

BFL's ratings: 
- Long-Term Issuer Rating: ‘IND AAA’; Outlook Stable 
- INR40bn long-term NCDs (increased from INR20bn): ‘IND AAA’; Outlook Stable
- INR10bn long-term unsecured subordinated debt (increased from INR5bn): ‘IND AAA’; Outlook Stable
- INR250bn long-term bank loan: ‘IND AAA’; Outlook Stable
- INR50bn short-term bank loan: ‘IND A1+’



SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in.The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings. 

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

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Analyst Names

  • Primary Analyst

    Siddharth Goel

    Associate Director
    India Ratings and Research Pvt Ltd Wockhardt Towers, 4th floor, West Wing Plot C-2, G Block. Bandra Kurla Complex Bandra (East), Mumbai 400051
    +91 22 40001760

    Media Relation

    Mihir Mukherjee

    Manager Corporate Communications and Investor Relations
    +91 22 40356121