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.
BFL 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.
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.
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